Mary Creagh: I thank my hon. Friend for his reply. I am sure that he will want to join me in congratulating the South Bank centre and the Royal Festival hall on their magnificent reopening overture weekend, which really brought in the community. Events included every primary school child in Lambeth singing gospel,gospel choirs from all over the south-east singingwith the Orchestra of the Age of Enlightenment, and an outdoor ballroom dance, in which I participatedwith my young son. Does my hon. Friend share my disappointment, however, and that of the chief executive, Michael Lynch, that, in a city in which more than4,000 people received bonuses of more than £1 million last year, it has been so hard for the centre to fund-raise for the refurbishment from the City boys and girls?

David Lammy: This is the biggest cultural Olympiad that has ever been proposed in an IOC bid, and Iask the hon. Gentleman to look at the proposals. Obviously, over the next few years, we will expect to see proposals coming forward from different parts of the regions. We have also said that there will be an international Shakespeare festival and an exhibitionfor which all our museums will join up. We have also said that there will be a legacy trust to provide up to £40 million of funding for events over the period. We also want to see private investment coming in.

Nick Raynsford: I am sure that my hon. Friend is as pleased asI am about the successful opening in Greenwich yesterday of one of the principal Olympic venues: the O2, which will host both the gymnastics and basketball finals and provide a remarkable entertainment complex with music and other artistic activities. Is not that a symbol of the success of this Government in driving forward projects that will enrich the capital's cultural and sporting future, in contrast to the negative views of the Olympics from the Opposition?

Stewart Hosie: The Minister may be aware that part of the Dundee city art collection was recently on display at the Fleming galleries in London. He will also be aware that there are a large number of high-quality civic and municipal collections around the country. As part of a value-for-money exercise, are there any plans to bring parts of those collections to London for display during the Olympic games, not only so that they can come out of storage and stop being a secret, but to promote all the areas from which those collections come?

Richard Caborn: I have met representatives of the Football Association to discuss governance of football on a number of occasions, most recently on 7 March. The broad proposals outlined by Lord Burns in his review of the FA were approvedby FA shareholders on 29 May. I welcome thosereforms, which will make the FA more representative of21st century football, putting it in a much stronger position to govern the game.

Richard Caborn: I do not think so. Let us keep thingsin proportion. As I said, we are running the most professional league in the world. There are 40,000 football clubs in England. It is by far the largest participation sport. It is governed by the Football Association, which has brought new governance into play. The conduct of clubs is being scrutinised more closely than ever. In July, the European Union will produce a White Paper on sport, which will address some of the issues at a European level, where they have to be considered if action is to be taken to curtail some of those excesses that have emerged in the game.

Hugh Robertson: Only yesterday the chairman of the Central Councilfor Physical Recreation wrote to  The Independent on Sunday, which made it its letter of the week, to say:
	"For all the fine words and photo opportunities of Tony Blair, sport—schools aside—has been firmly at the periphery of this government's sights...Community sports clubs have enjoyed precious little investment over the past decade."
	How on earth will all the legacy commitments be financed?

Kate Hoey: Can my right hon. Friend explain what the legacy will be for one of our most successful sports—shooting—with a venue that will cost £20 million to put at Woolwich and some£10 million to bring it down afterwards, when the sporting bodies want it at Bisley? What is the legacyfor shooting? Why is it not common sense to put it somewhere people want it?

Alison Seabeck: Have my hon. Friend or any of his Front-Bench colleagues recently visited Plymouth civic centre, for which English Heritage sought listed status? It has just been granted grade II listed status, which is disastrous because it is a sick building for those who work in it,is environmentally unfriendly, and is an eyesore. The grant of listed status will delay the redevelopment of Plymouth city centre, which could have incorporated some brand-new, exciting and architecturally better buildings. I urge my hon. Friend to reconsider that decision.

David Lammy: I am grateful to my hon. Friendfor raising that point. He will know, because his constituency is just above mine, that Tottenham too has received such funding to regenerate the townscape façade on the main high road route that in the end comes off the A1. The money has been incredibly well spent in some of the poorest parts of north London and we are grateful. English Heritage continues to consider how it can use money to best effect in deprived constituencies such as ours.

Tessa Jowell: The free admission policy has been enormously successful and popular with people up and down the country. Let me give the hon. Gentlemanthe figures. There has been an 87 per cent. increase in visits since December 2001 when this Government introduced universal free access to museums that formerly charged. That represents an extra 6 million visits a year, or 29 million more visits over the five years since entry charges were abolished. I am delighted to announce today that last year was the best year ever for our sponsored museums and galleries, with a record-breaking 39 million visits. The policy has support up and down the country. It is a policy that the Conservative party would put—

Tessa Jowell: If we are talking about errors of judgment, we should refer to the hon. Gentleman's little foray into thinking aloud about what would happen if museums were allowed to charge again, and to the agonising spectacle of his U-turn, which took place all of six or nine hours afterwards. I am proudof the legacy of free entry to the museums of this country, and that is a commitment with which the Government will continue. The people of this country will realise that that popular policy is put at risk by the Opposition.

Louise Ellman: Does my right hon. Friend agree that free entry has been a major factor in the growing importance of Liverpool's museums? Will she continue to give her full support to the museums' trail-blazing projects, suchas the new slavery museum and the new museum of Liverpool life?

Richard Caborn: The Government are currently at an advanced stage ofthe discussions on a possible sale of the Tote to a consortium of racing interests and the staff and management of the Tote. The Government hope soon to be able to announce their intentions on how to proceed.

Ben Wallace: Mr. Speaker, I do not have a registered interest to declare, but I think that it would be courteous to inform you that I may in the future.The privatisation of the Tote has been a long and drawn-out process that goes back many years to 2001. Will the Minister tell us why it is being held up in the Treasury, what he will do about it, and how he will ensure that the Tote is given back to racing?

Richard Caborn: The hon. Gentleman is absolutely right: we have said in two election manifestos that we willsell the Tote into racing. It is not the Treasury that has been the major problem, but Europe.  [Interruption.] Perhaps the hon. Gentleman will listen. We were trying to sell the Tote at a fair price, but we were told very clearly that it had to be sold at a market price. We had a lot of wrangling with the European Commission and its competition directorate-general, but eventually we got an agreement and a market price. We had been in discussions with a consortium, but the consortium could not come up with the money in the first round. The Tote's staff and management got involved, and I believe that in the coming period we will come before the House and say how we intend to proceed. It has been a long, drawn-out process, but I can say to the hon. Gentleman that we will put the Tote into racing; we will secure the 600 jobs in the north-west, and about 2,000 jobs around the country; and we will make sure that the Tote's product is there for the punters, who believe that they have a safe bet with the Tote.

Neil Turner: The Minister will be aware that the Tote headquarters is in the constituency of Wigan. I pay tribute to him for the work that hehas done in maintaining the independence of the Tote throughout the negotiations. Will he continue those negotiations to ensure that independence, so that the jobs are maintained in the constituency and the Tote has the opportunity of expanding so that more jobs can be taken on in the borough of Wigan?

Richard Caborn: I give that assurance. One of the things that has been at the centre of these discussions is to ensure that in bringing the Tote into the marketplace owned by racing we secure the 600 jobs in Wigan. Those staff are absolutely first class, and I know that when the sale goes through the management have plans considerably to expand the influence of the Tote in the United Kingdom and internationally. I wish themluck in that. I hope that we will secure not only those 600 jobs but many more in the north-west as well.

Anne Milton: We are all fed up with waiting. On 14 March, in an answer to a parliamentary question, the Government said that they intend to proceed with this in due course. On 25 April, they said that they will announce shortly how they intend to proceed. On 3 May, they said that they hope to makea decision in the course of the next few weeks. On17 May, they said that they remain in discussion. Today, the Minister says that things are at an advanced stage and it will happen very soon. Can he tell us when?

Peter Bone: Will my hon. Friend congratulate all young candidates who took part in the recent local government elections, particularly, in Wellingborough, Mr. Peter Bedford, who is 21 years old, Mr. Calum Heckstall-Smith, who is 18 years old, and Mr. Thomas Pursglove, who is 18 years old, all of whom are young, all of whom are newly elected and excellent councillors, and all of whom are Tories?

Simon Hughes: Will the hon. Gentleman, as part of his Committee's inquiries, encourage his Committee and the Electoral Commission to examine the diversity of the candidates who stand? People are keen that we should have a broader base of candidates. May we have information on that as soon as possible?
	We welcome the new initiative of people betweenthe ages of 18 and 21 being able to stand. We note that such young people in different parties have not only been elected but ended up on council executives and in senior positions in their first term of office, both south of the border in England and north of the border in Scotland. That is welcome progress.

Stuart Bell: Last July, the General Synod set up a legislative drafting group to prepare the draft Measure andcanon necessary to remove the legal obstacles to the consecration of women bishops. It is keen to make progress but, realistically, we are several years away from the consecration of the first female bishop.

Robert Key: Has the hon. Gentleman seen early-day motion 1664, which was tabled only 10 days ago but has already attracted67 signatures from across the House? Will he please sign that motion?

Stuart Bell: The hon. Gentleman makes official his unofficial request to me. Perhaps we should wait till Thursday and see what happens.
	We should hesitate to be critical of those who tryto preserve the Church of England as a broad church that gladly encompasses such differences. They are profound and theological and make for enormous difficulties in the Church.

Stuart Bell: I am grateful to my hon. Friend, but he knows that, since 1919, we have rendered
	"unto Caesar the things which are Caesar's".
	That is to say that the Church is responsible for itsown legislation and we are here to enact it, should it interfere with legislation that is already on the statute book.
	"The mills of God grind slowly"—
	certainly in relation to women bishops.

Ann Cryer: As a very proud stepmother whose stepdaughter will be ordained in Sheffield cathedral on Sunday, I have a vested interest and I should like a little more encouragement frommy hon. Friend. Does the Ecclesiastical Committee not have an influence?

Peter Viggers: I am advised that the returning officer for Kettering is exceptionally capable and active in ensuring that the new electoral arrangements arecarried out satisfactorily. The chairman of the Electoral Commission visited Kettering fairly recently, and I gather that officials at Kettering borough council have made contact with the Electoral Commission's new midlands office, which is based in Coventry. I hope that all those things have helped the council in its very efficient performance.

Alan Williams: The commission examined the NAO estimate for 2007-08 earlier this year. It approved a budget of just under £92 million for audit and other assurance services. The NAO estimated that some£55 million would be needed for staff, £21 million for outsourced services, and the balance for supporting services such as IT and travel. Just under 25 per cent.of the NAO budget, therefore, is expected to buy in external expertise.

Alan Williams: I thank my hon. Friend for his supportive observations. May I point out that the National Audit Office makes a profit of £4 million a year from its overseas operations in 23 countries? On the recent publicity in relation to travel, it is important that I make something clear to the House. I have met the Chair of the Audit Committee of the National Audit Office. He agrees with me that because the House has given complete discretion—that is a statutory term—to the Comptroller and Auditor General, it is appropriate that we should develop a more transparent system. He is now working with the Commissionand myself to develop such a system, and when it is finalised I will make a statement.

Tony Blair: With permission, Mr. Speaker, I shall make a statement about the outcome of the European Council in Brussels on 21 and 22 June.
	I congratulate the German Chancellor, Angela Merkel, on concluding successfully an exceptionally difficult negotiation and on an outstanding presidency of the European Union.
	Before the European Council, I made it clear thatthe concept of a constitutional treaty for Europe had to be abandoned and that we should agree instead a conventional amending treaty like the Nice, Amsterdam and Maastricht treaties and the Single European Act. I also made it clear that the UK had four central demands which had to be met. First, on the charter of fundamental rights, we secured a legally binding protocol, specific to the UK, and applicable both to the British courts and to the European Court of Justice. Let me read the terms. The protocol states that
	"the Charter does not extend the ability of the Court of Justice, or any court or tribunal of the United Kingdom, to find that the laws, regulations or administrative provisions, practices or action of the United Kingdom are inconsistent with the fundamental rights, freedoms and principles that"
	the Charter
	"reaffirms.
	In particular, and for the avoidance of doubt, nothing inthe Charter creates justiciable rights applicable to the United Kingdom except in so far as the United Kingdom has provided for such rights in its national law."
	In respect of our criminal law system and police and judicial processes, we obtained an extension of the opt-in rights that we secured in an earlier treaty on migration, asylum and immigration issues. This means that we have the sovereign right to opt in on individual measures, where we consider it would be in the British interest to do so, but also to stay out, if we want to. It is precisely the pick and choose policy often advocated. It gives us complete freedom to protect our common law system, but it also allows us to participate in areas where co-operation advances British interests. In asylum and immigration, for example, we have opted in on measures dealing with illegal immigration, and in measures allowing us to return asylum seekers to other European countries—both unquestionably in Britain's interests. But it will be within our exclusive power to decide on a case-by-case basis, which is exactly what we wanted.
	In respect of social security, we negotiated a provision which allows us to insist on unanimity in any case where we—that is, Britain—declare that any proposal from the Commission would affect important aspects of our social security system, including its scope, cost, or financial structure or balance. Our social security and benefits system is therefore completely protected.
	As for the common foreign and security policy, the basis of this will now remain unchanged in a separate treaty, and a separate pillar, from the first pillar Community method. The essential features of the CFSP remain as they were. Unanimity voting is the rule. There is no sole right of initiative for the Commission. There is no role for the European Parliament in decision taking. There is no jurisdiction for the European Court of Justice, except in the particular case of safeguarding the rights of individuals subject to EU sanctions. The two jobsof Commissioner for External Relations and High Representative which, of course, exist already, will be amalgamated in a single job. But this reform does not extend the EU's substantive powers to act in foreign policy. In particular, the Union Representative, when working on common foreign and security policy issues, will operate within a policy framework set by the European Union Foreign Ministers, by unanimity.
	All these guarantees not merely remain in the new treaty, but are reinforced in a new overview articlethat reaffirms them and has full legal force. For the avoidance of doubt, we also obtained a declaration that sets out the unanimous view of all member states about the meaning of those guarantees. That declaration, which then informs the detailed negotiation of the intergovernmental conference, states that the common and foreign security policies of the treaty, including in respect of the office of Union Representative and the external action service,
	"will not affect the existing legal basis, responsibilities, and powers of each Member State in relation to the formulation and conduct of its foreign policy, its national diplomatic service, relations with third countries, and participation in international organisations, including a Member State's membership of the Security Council of the UN."
	There was also a discussion at the Council about competition. The treaties have always made it clearthat competition in the internal market should notbe distorted. The now defunct constitutional treaty's objectives would have included new wording about "free and undistorted competition". When the treaty was set aside, that provision was lost, but we agreed on a new and legally binding protocol to be annexed to the treaties, which reaffirms the commitment to ensuring that competition is not distorted, and the other references to competition in the existing treaties will remain: for example, articles 4, 27, 34, 81 to 89, 96, 98, 105 and 157 from the European Community treaty. The legal position in relation to competition therefore remains unchanged.
	Alongside meeting our four essential requirements, we secured a number of further improvements. The new treaty will confirm for the first time, explicitly, that national security is the sole responsibility of member states. The Union already signs international agreements, but the treaty formalises its legal personality. However, we have now agreed a declaration by all countries for this intergovernmental conference confirming that the fact of this legal personality does not authorise the Union in any way to legislate or act beyond the powers conferred on it by member states in the treaties. There are also new powers for national Parliaments to object to Commission proposals on subsidiarity grounds.
	There are a number of extensions of qualified majority voting. In the most sensitive areas of QMV—justice and home affairs, and social security—we obtained the right either not to participate or to insist on unanimity. In addition, a number of other QMV measures—for example, those about rules within the eurozone, or those in justice and home affairs—do not apply to us. As for the rest, we have agreed them, because qualified majority voting is often in Britain's interest. The biggest move to qualified majority voting in Europe's history was the Single European Act, but this allowed the creation of one of Europe's greatest achievements: the single European market. More recently, we have secured reforms such as the services directive and other liberalising measures through QMV, including the lifting of the beef ban, when they would almost certainly have been blocked through unanimity. Among the QMV provisions in the treaty is one that provides a new legal base and QMV for energy market liberalisation, and another that provides QMV for decisions on emergency humanitarian aid to third countries—both of them manifestly in the UK's national interest.
	The other main reform is the fixed term, two-and-a-half-year presidency of the European Council, replacing the current rotating six-monthly arrangements. This is necessary for the Union's efficiency, but does not involve any extension of presidency powers. The President of the European Council will remain the servant of the leaders of the member states.
	The most important aspect of the new treaty is that it allows the European Union to move on to the issues that really matter. For too many years, we have been bogged down in a debate about institutions. Withthe increase from 15 to 27 member states, changeis essential, but with this agreement, we can now concentrate on issues that really matter: energy security, organised crime and terrorism, globalisation, further enlargement and making Europe's voice more effective internationally.
	This agenda is surely quintessentially one in Britain's interests. Over the past 10 years, Britain has moved from the margins of European debate to the centre. This is absolutely right for Britain. Whether indefence or economic reform or in energy policy orthe environment, or of course most particularly in enlargement and the appointment of the new Commission President, Britain has for a decade been in a leadership position in Europe. That is exactly where we should stay. I commend this agreement to the House.

David Cameron: The hon. Gentleman is much better on the internet.
	Was not the author of the constitution himself, Giscard d'Estaing, telling the truth when he said that
	"the public is being led to adopt, without knowing it, the proposals that we dare not present to them directly."?
	Above all, was not the Irish Prime Minister telling the truth when he said that 90 per cent. of the substance of the constitution is still there?
	Indeed, the treaty itself states that it is bringing back the constitution. Clause 1 of the mandate for the forthcoming intergovernmental conference states:
	"The Reform Treaty will introduce...the innovations resulting from the 2004"
	intergovernmental conference
	"as set out below in a detailed fashion".
	If it looks, reads and feels like the constitution, that is because it largely is the constitution, which is why there should be a referendum.
	Now let us have a look at the red lines, which do not include the EU President, the single legal entity or the vetoes, and even the areas that they cover are falling apart. The Prime Minister has said that British foreign policy is not being displaced, but we find that that red line is only in a declaration, which is not legally binding. The Prime Minister has said that the charter of fundamental rights could not change British law, but that red line has already been challenged by senior judges. In any event, his whole argument is bogus, because at the time of the constitution he said that the same red lines were met, but he offered the people a referendum. He said that the constitution
	"does not and will not alter the fundamental nature of the relationship between member states and the European Union."
	However, he went on to say:
	"Parliament should debate it in detail and decide upon it. Then, let the people have the final say."—[ Official Report, 20 April 2004; Vol. 420, c. 155-57.]
	What has changed?
	The Prime Minister's third claim is that the treaty does not mean a significant transfer of powers from Britain to Brussels. That is simply wrong. Will the Prime Minister confirm that power is being transferred in 60 areas as the veto is abolished? Far from their all being minor areas, they include energy, transport, employment law and the new EU diplomatic service. The new treaty even gives up some powers which members of his own Government have warned against. Two weeks ago, the Foreign Secretary said that putting criminal justice under the control of the European Court would be a "major change" and a "matter of some controversy". So why did he sign up to it?
	The Prime Minister himself said that the EU being given a legal personality across all the areas of its work would be "potentially damaging". So why did he sign up to that? The Leader of the House——the once and future Foreign Secretary——described the Foreign Minister and the EU President as central elements of a constitutional treaty, which could not be introduced without a referendum. So where is the referendum?
	With this treaty, something is being done that was not included in any previous treaty. It does not just transfer specific power from Westminster to Brussels; it also includes a new ratchet clause that allows manyof the vetoes that survive to be abolished without anew treaty. The Prime Minister shakes his head. He obviously does not know what he signed up to. This can happen without an intergovernmental conference and without the British people being allowed a say. Is not that another reason why we need a referendum?
	This summit could have been about free trade, climate change and a trade deal to help Africa. Those things do not require a single extra central power in Brussels. They simply require political will and a sense of purpose.
	All three main parties in the House signed up to a referendum at the last election. The Prime Minister has broken that promise, but within two days he will be gone. We will have a new Prime Minister, one who has promised, unlike his predecessor, to be humble, to be a servant of the people and to listen. If that new Prime Minister, like us, really believes in power to the people, he must hold a referendum and let the people decide.

Tony Blair: Let me deal with each point in turn. First, I should point out that when the right hon. Gentleman quoted from the draft mandate for theIGC from the German presidency, he missed out the succeeding sentence, which is:
	"The constitutional concept, which consisted in repealing all existing Treaties and replacing them with a single text called 'Constitution' is abandoned."
	Let me go through the 49 articles that create QMV. Thirteen of them do not apply to the UK because they are about the eurozone or judicial and home affairs, which we have opted out of. Six involve issues such as allowing a group of citizens to propose initiatives; the negotiation of a withdrawal agreement—I should have thought that the Opposition would want QMV on that; two relate to ending special state aid provisions for Germany post-reunification and to diplomatic and consular protection measures, which are not about the service, but about protection. Nine are minor and technical, including such extraordinary matters as the Council review of general rules on the composition of the Committee of the Regions, and the Comitology Committee, whatever that might be. Nine of them relate simply to new legal bases, but powers already exist.
	There are nine articles of genuine substance on matters such as the implementation of own resources decisions, which it is in Britain's interests to have QMV on, because it allows us to ensure that countries cannot block that; on the authorisation, co-ordination and supervision of intellectual property rights protection, which, again, it is absolutely in Britain's interests to have; and on matters such as urgent aid to third countries and humanitarian aid operations.
	The idea that this involves some vast transfer of powers from the UK to Brussels is completely and utterly absurd. But do not take my word for it, take the word of the right hon. and learned Gentleman who heads up the Opposition's constitutional committee.

Tony Blair: The former Chancellor of the Exchequer, the right hon. and learned Member for Rushcliffe (Mr. Clarke), who is very wise on this subject. He said:
	"some of the Eurosceptics will have demanded a referendum just about the date on the top of the piece of paper, but they are flogging away, I think, at a dead horse."
	Not that that discombobulated him for a moment.
	The Single European Act and Maastricht involved far more QMV transfers than anything that we have agreed. As for the external action service of the EU, because it comes under one person—it is sensible to merge both posts—the Commission offices will break down the barriers with the Council offices, so that they can all be in the same place. Are we to have a referendum on an open-plan office? It is absurd.
	The question that I have for the right hon. Gentleman is this. If this is so important, if this is the one thing that requires a referendum, sucking awaythe country's political energy for months, why did he not go to the meeting on Thursday morning of the European People's party to which he was invited by the German Chancellor? What did he say when he was asked to go to the meeting? He said that he was too busy to attend. So this is a fundamental question requiring a referendum, yet he cannot even turn up to the meeting.
	Incidentally, if the right hon. Gentleman thinks that he will get some salvation from the new grouping that his party is joining, which includes the Czech Prime Minister, let me tell him what his friend the Czech Prime Minister has said about the deal. He said:
	"it was very difficult but in the end very successful. The result is considerably better than the European Constitution",
	and that he did not think that a referendum should be held. The truth of the matter is that the Conservative party has not got a serious policy on Europe. This is no doubt the reason why the right hon. Gentleman did not raise the matter at Prime Minister's questions last week or attend the European People's party meeting and, to be fair to him, I think that he is going through the motions a bit today. If the Conservative party wants to be a serious party of government, it should have a serious policy on Europe. The fact that it does not have one means that it is not a serious party of government.

Menzies Campbell: Are any of the issues contained in the mandate to the IGC capable of being reopened, or is the mandate the final word on what can be discussed at the IGC? The Prime Minister has said that the legal position in relationto competition remains unchanged, but does he understand the anxiety of the CBI that competition policy has been substantially weakened? How will the ability of the European Union to facilitate the internal market be achieved if protectionism begins to rise again? In particular, how will the European Unionbe able to deal properly with the challenges of globalisation if there is further protectionism? What specific rights did the Prime Minister find so objectionable as to justify a United Kingdom opt-out from the charter of fundamental rights? What flexibility does the EU Trade Commissioner now have in relation to agriculture for the purpose of achieving a successful outcome to the Doha round? Finally, what decisions were taken on the role that the European Union should play in alleviating the desperate humanitarian conditions in Gaza?

Tony Blair: The detail of what was agreed obviously has to be negotiated at the intergovernmental conference, but the key elements have been agreed.In relation to the language in the constitutionaltreaty about free and undistorted competition, it was somewhat bizarre to meet people who said that they wanted the whole constitutional treaty to be scrapped, but that we should have preserved these particular words. I am afraid that, once vetoes went down from us in a whole series of areas, vetoes went down for others, but that is exactly why we had the legal protocol. The Commission lawyers have made it quite clear that they believe that their ability to act in the internal market is unfettered, unrestricted and unchanged as a result of this; that is important.
	In respect of the charter, it is not that we are against any of the fundamental rights. Indeed, we have such rights in UK law. We wanted to ensure, however, that there would be no question whatever of our being in a position where either the European Court of Justiceor our own UK courts could use the charter of fundamental rights to extend or expand UK law, particularly in the labour market or the social sphere. I do not believe that that is the intention, but we need to bolt this down very clearly. We are able to do our own laws in our own way here, and that is the right thing. I understand why people are now asking whether we are against people's fundamental rights. Of course we are not, but we believe that, in respect of the charter, it is better that those things are decided here.

Tony Blair: Of course, all the usual legislative scrutiny will take place, as the proposals will require legislation through the House. My hon. Friend is right that the work of both the German presidency and others to get an agreement is important. I did not pick up this point when the leader of the Conservative party was speaking, but he wrote an article the other day about what Europe should concentrate on, and that it should not be navel gazing. In a sense, that is absolutely right. The important thing, however, is that it did need to change its rules. The move from 15 to27 countries, particularly when the majority of the new countries are very small, requires us to change our rules to make them effective. Now that the key elements have been agreed, we can put the matter to one side and get on with the more important issues that really affect citizens in Europe.

Kenneth Clarke: Does the Prime Minister agree that, following the successful enlargement of the Union, which was supported by everybody in the House, it was inevitable that the treaties would have to be amended to improve the decision making of a larger Community, and that he has achieved the maximum necessary to do that? Does he realise that he has adopted one of the recommendations of the Conservative party's democracy taskforce in rescuing from the wreckage of the Giscardian constitution the enhanced role for national Parliaments in future legislation? Now that we can put a line under institutional debate and get on with the real business of the Union, however, does he agree that, in addition to the subjects that my right hon. Friend the Leader of the Opposition and he mentioned, we need to develop on an inter-governmental basis some foreign and security policy that will enable Europe to take a collective line on the problems of the middle east, relations with Russia and our role in the Atlantic alliance, and that we are now clear that we can go ahead with our own sovereign right to participate quite untarnished?

Tony Blair: I agree entirely with what the right hon. and learned Gentleman says about the efficiency of the European Union and the need forthe rules to change. It is important that people understand that the expansion to 27 countries is not just a question of another 12 countries being there. Because some of those countries—no disrespect to them—happen to be small, carrying the burden of a full-time presidency will be difficult for them. The national Parliaments point is absolutely right. I had not realised that it was a Conservative party taskforce recommendation; despite that, I am still in favour of it. His last point is important, because even though I am a very strong supporter of the American alliance, I also believe that it is important that Europe has a common foreign and security policy— [Interruption.] Well, I do believe that. I remind Conservative Members that those words were first used in the Single European Act and the Maastricht treaty. They were negotiated originally by Margaret Thatcher, and quite right too. That should not be against the American alliance, but in relation to Iran, Kosovo or how we make progress in the middle east, for example, it should allow us to have a European position. That is sensible and in the interests of this country.

Stuart Bell: As the Prime Minister will recall, he went to St. Malo in 1998, met President Chirac and set down the basis of a common foreign and security policy. Building on his references to asylum and immigration, energy policy, enlargement and globalisation, can we add climate change andthe environment? With 27 member states and proper institutional arrangements, is it possible for us now to give world leadership on those issues, which will be to the utmost benefit of Europe and the British people?

Tony Blair: My hon. Friend is absolutely right. Incidentally, at the time that I concluded theSt. Malo defence agreement in 1998, Conservative Members in particular said that it would effectively abolish our right to act independently, that, in particular, we would not be able to go into military alliance with America, and that we would end up with a European army superseding the UK Army. All those points have turned out to be nonsense. Europe does some very worthwhile missions in different parts of the world, and co-operating in European defence is entirely sensible. The European Union should definitely work together on climate change. If Europe makes its voice heard on climate change in a collective way, there is no doubt that it will be far stronger than any individual country, including Britain.

Frank Field: Does the Prime Minister think that his successor will be able to maintain his line against a referendum? Let us suppose that the Leader of the Opposition decided to give a pledge that, should he be elected at the next election,he would give the British people a vote on the treaty.As such a move would probably be very popular, particularly among Labour voters, does the Prime Minister believe that his successor would go into a general election leaving this issue for the voters to decide then, rather than in a referendum? In those circumstances, would not his advice to his successor be that he ought to separate the issues, have a referendum and then separately have a vote at the general election?

Tony Blair: The provisions for the enlargement criteria are more about making it clear that the existing criteria—the Copenhagen criteria—will be properly adhered to. One has to be practical about it, and when a small country is coming into the European Union, the criteria are still important and legally enforceable, but it is not the same as when a very large country is joining. What Europe is signalling is that after a period of very rapid enlargement, in which 12 new countries joined, it wants to ensure that the essential criteria are kept in future. I happen to be a supporter of Turkey's membership of the EU and I will continue to support it, but it knows very well that in order for it to join the EU those criteria will have tobe met.

Austin Mitchell: I wonder whether my right hon. Friend can help me. Surely we are talking not about a treaty but about a discussion in the Council of Ministers, which is a treaty organisation and therefore cannot negotiate its own treaties. In fact, a new treaty is the responsibility of the IGC, and that works on the basis of unanimity, not the simple majority voting of the Council of Ministers. So we now have a situation in which we can, and in my view should, still veto the whole unnecessary business. More importantly, can my right hon. Friend tell us how, assuming that the treaty pops up in October, we in this House can discuss it and decide on it beforethe IGC?

Tony Blair: There will of course be ample opportunity, through the ratification process, to havea full debate on it. Why would we want to veto this treaty? It provides the means for a more effective working of the European Union. Let us be clear about this: my hon. Friend, and some Opposition Members, would call for a referendum even if we added a comma to the constitutional treaty, because what they really want is to take us out of Europe, and they might as well be honest about it.

William Cash: He shakes his head, but the Chancellor and the Leader of the House, who are sitting next to him, know perfectly well that that was true. Will the Prime Minister not accept that the presidency conclusions in his statement are misleading? Under these proposals, all the existing treaties will be consolidated and amended, and there will be therebya collapse of all the pillars, into a union. The consequence of that is a fundamental constitutional change. Even on the Prime Minister's own terms, therefore, a referendum is essential. He made that decision before; he should do so again—and so should his successor.

Tony Blair: The hon. Gentleman is simply wrong about the common foreign and security policy. It remains intergovernmental: that is made absolutely clear in the overview article that I described earlier.He says that he has heard it all from me before—but frankly, I have heard it all from him before.  [ Interruption. ] It is probably greatly to the benefitof both of us that neither of us will have to hear the other again.
	I cannot see the right hon. Member for Wokingham (Mr. Redwood) in his place—[Hon. Members: "There he is!] I am sorry, his suit was camouflaging him on the Opposition Benches. About the Amsterdam treaty, the right hon. Gentleman said:
	"If we sign the Amsterdam Treaty, we will abolish our country."

Tony Blair: Yes, it is essential that the Lisbon agenda is maintained. Although the new words from the constitutional treaty were removed, it is important to remember that all the articles relating to the Single European Act remain in place, as do the Commission's powers to act. Of course, that is the other reason why it is important for us to have a strong European Commission. We are lucky, I think, in that the President of the European Commission basically supports our agenda. We will not get the Single European Act completed unless the Commission isable to use the qualified majority voting provisions to complete it.

Elfyn Llwyd: The Prime Minister will know that much of the proposed reform treaty, and therefore the work before the IGC, will be devolved matters, so will he assure the House that the UK Government will meet the Administrations of Wales, Scotland and Northern Ireland before any ultimate treaty is signed off bythe IGC?

Gisela Stuart: I wonder whether the Prime Minister can help me, as I am having trouble understanding something. Back in April 2004, the reasons for granting a referendum and making a manifesto commitment were not about constitutional change but because we should let the people have a say. The Prime Minister's Foreign Secretary and Minister for Europe now argue that one of the main reasons why we should not have a referendum is that we are a parliamentary democracy—yet the document to which the Prime Minister signed up at the weekend grants the people of Europe a right that neither national Parliaments nor Governments have, which is to petition the Commission for legislative proposals. I find it difficult to reconcile, on the one hand, giving the people of Europe a right that we do not give our Parliament, yet on the other hand, not asking ourown people.

Tony Blair: I was in favour of the constitutional treaty, and said at the time that I didnot believe that it involved fundamental transfer of power, but I obviously had to accept that it is called a constitutional treaty and brings everything together in one place; indeed, it purports to be a constitution for the whole of Europe. Other countries were holding referendums on that basis. The two things that are different are, first, that we have abandoned that position and gone back to a conventional amending treaty—and I know that my hon. Friend would not say that Nice, Amsterdam and so on should have been subject to referendum. Secondly, in respect of the four areas, we have secured real changes. The right hon. Member for Witney (Mr. Cameron) was talking earlier about what the Irish Prime Minister said, but for Britain, justice and home affairs and the charter of fundamental human rights were the two main issues. As ever with the Eurosceptics—I do not include my hon. Friend the Member for Birmingham, Edgbaston (Ms Stuart) among those—we give them one thing, but they just move on to the next. My hon. Friend is absolutely right to say that we were making those arguments, but in two main areas we now have a position that is completely different—and protected.

Tony Blair: The premise of the right hon. Gentleman's question—that new powers are given to Europe as a result of the single legal personality—is wrong. It is made specifically clear that the singlelegal personality does not extend the powers of the European Union. That is stated in terms. As forthe idea that Europe previously never had a legal personality, the European Union has already concluded scores of treaties; all this does is make sure that there are not two different methods, which sometimes come into conflict, for Europe to conclude treaties.

Tony Blair: On the judicial and home affairs power, it is important to recognise that we previously negotiated an opt-in—not an opt-out—to asylum and immigration measures. That was hugely important.If we had simply negotiated an opt-out, as the Conservatives did—in my view mistakenly—on the social chapter, it would mean that we either had to stay out of everything or come into everything. Instead, what we negotiated on asylum and immigration was—

Tony Blair: Exactly. It was a pick-and-choose method, which is absolutely the right thing to have on that.  [ Interruption. ] Then the Opposition should be supporting us. As a result of that, for example, in respect of the immigration measures I think that we are returning about 120 or 130 failed asylum seekers to Europe every month. We could not have done that without the opt-in procedure. Thatis why it is important that we also have an opt-in procedure in respect of the judicial and criminal law systems. There may well be measures in Europe on which we want to co-operate with other countries, and the procedure gives us the ability to opt in when we want to, and opt out when we want to.

Tony Blair: I hope that is correct. One of the reasons why we should get off the endless debate about institutional mechanisms is that I have noticed from the European enlargement through which 12 new countries have come in, that Europe today works essentially though political alliances. To be absolutely frank, even under QMV, if our country has a major interest but we cannot assemble a blocking minority—incidentally, I cannot think of an occasion on whichwe have not been able to do that in the past 10 years—there is something wrong with the way in which we are going about building up political alliances.
	The key thing is for Europe to decide its coherent direction. Whether it is on energy policy, the environment or any other issue, the institutional mechanisms will be only as good as the political direction that is using them. If the political direction is right, we have a chance of making Europe work more effectively. It is interesting that most objective observers would say that Europe has tended to move in the direction in which Britain has wanted over the past few years. We should use that and work on it.

Andrew Miller: In respect of organised crime, was there any particular discussion about people trafficking? Is it not the case that the 27 working together can best deal with that serious problem that faces not just us but countries on the southern borders of Europe such as Malta, which has real difficulties because of the impact on itsshores of organised crime from several north African countries?

Tony Blair: My hon. Friend is absolutely right. That is another area on which Europe should work more closely and integrate its policy to a greater extent. There is no way in which we can deal with organised crime and illegal immigration except, partly at least, on a Europe-wide basis. Illegal migration into Europe is a major problem for countries such as Malta and, to an extent, Spain. Europe should be using its collective power and strength to demand action by countries that are allowing such migration to spread to ensure that we protect European borders better. Thatis sensible, because we cannot protect our bordersif people are coming into Europe illegally and then becoming migrants who are entitled to move right across Europe.

Peter Lilley: Is the Prime Minister not aware that the issue of the referendum is ultimately a question of integrity, and of people's ability to trust their politicians to keep the promises that they made at elections? The issue is not how similar this treaty is to treaties enacted decades ago, but how similar it is to the constitutional treaty on which it is based, and on which the Prime Minister promised the British people a referendum. Is it not clear that the similarities far exceed the differences,and that the German Chancellor, who said that the substance was unchanged and that only the terminology had changed, is more to be trusted than he is?

Wayne David: For some time, the debate about the future of Europe has been obsessed by rather esoteric institutional issues. Does the Prime Minister agree that this weekend's agreement provides us with a golden opportunity to focus onthe issues about which the people of Europe are concerned, such as the competitiveness of our economy, jobs for our people and enhancing our environment?

David Curry: Does the Prime Minister recall that when he reported on the G8 summit at the Dispatch Box just a few days ago, he said how optimistic he was about the progress of the world trade talks? Those talks collapsed at Potsdam, so is this not an especially bad time for the European Union to give the impression that it is resiling fromits commitment to full competition? If nothing has changed, why have the words changed?

Tony Blair: The words have changed, of course, because they were in the constitutional treaty. I am afraid that this is what people will have to accept: I would have preferred to keep the words in, of course, but if I am laying down four vetoes, and red lines and so on, others will lay down their red lines, too. As a matter of fact, I think that we have protected completely the juridical and legal basis for the internal market, and that is extremely important. The righthon. Gentleman is right: I think that Europe must ensure that strong messages are sent out that the Commission's powers in that area remain unchanged, and that it will use those powers to enforce the internal market. As for the trade talks, it is correct that the Potsdam talks broke up without agreement. However, I still think that there is a possibility of getting this back on track. I have to say that the narrowness of the difference between the main countries now really would make it an act of gross irresponsibility on behalf of all of us if we did not conclude the deal. They are now very close. If we do not do it, we will deal a real blow to the multilateral system, and not merely to world trade.

William McCrea: If the Prime Minister is so sure that the treaty is good for the United Kingdom and has the support of the British people, why is he afraid to put it to a referendum ofthe people, and why did he offer the possibility of a referendum in his last manifesto?

Tony Blair: The hon. Gentleman is shaking his head already. I was just about to explain whatit does. It allows us, across Europe, to work on technological projects that have a Europe-wide application—but because it has the word "European" in it, he is against it.

John Healey: I beg to move, That the clause be read a Second time.
	New clause 5 introduces a targeted anti-avoidance rule that tackles the use of tax avoidance schemes designed to generate deductions in respect of "expenses of management" under section 75 of the Income and Corporation Taxes Act 1988. If left unchecked, those schemes would cost the UK Exchequer—the public purse—£1 billion a year. Section 75 of the 1988 Act provides "companies with investment business" relief for the expenses of managing that investment business. The rules were introduced way back in 1915 and originally applied only to pure investment companies and to insurance companies.
	The rules remained largely unchanged until the Finance Act 2004. The changes that we made three years ago widened the range of companies able to obtain relief for expenses of management. They also specifically excluded capital expenditure and introduced an unallowable purpose rule in relation to investments not held for a business or commercial purpose. The unallowable purpose rule made no explicit reference to tax avoidance purposes. It was believed at the time that that rule and a tough approach to the construction of the phrase "expenses of management" derived from case law would be sufficient to stop any abuse. Sadly, the appetite of some for tax avoidance has proved us wrong. In the past two or three years, the disclosure of tax avoidance schemes rules and other inquiries have shown us that there are already a number of avoidance schemes that create deductions for relief as expenses of management which are both substantial and contrived.
	The latest scheme is an attempt to circumvent other anti-avoidance legislation introduced in the Finance Act 2004. It creates a wholly artificial deduction for management expenses in return for the receipt of a dividend to which the UK company was already entitled before the scheme was put in place. These payments—treated by the companies as management expenses—are made to overseas companies, which are usually located in tax havens and therefore usually outside the UK tax net. The group of companies asa whole suffers no economic loss as the money is effectively flowing in a circular fashion—the loss is actually borne by the UK Exchequer. That happens when the holding company gets relief for the artificially manufactured management expenses. That sort of scheme is relatively easy to implement and we calculate that—if effective—it has already put at risk morethan £240 million to the public purse. Without urgent action, many more groups of companies are likely to adopt the scheme.
	Her Majesty's Revenue and Customs does not accept that the schemes are in accordance with existing legislation. Given the potential cost to the Exchequer and the uncertain outcome of litigation, we are taking action now, to put the issue beyond doubt. The new clause confirms that assets held for a tax avoidance purpose are not held for a business or commercial purpose of the company, and ensures that the scope of the provisions is as wide as possible. We believe that the changes deal with the known schemes and also go appropriately wider, countering any other schemes that might try to secure relief of contrived management expenses.
	The sheer size of the potential cost requires immediate action. I therefore regret that, in those circumstances, it has not been possible to consult on the new clause. However, the measure will not affect compliant companies. It affects only those that are involved in tax avoidance. The new clause tackles artificial schemes and will not therefore affect commercial transactions. I commend it to the House.

Mark Hoban: I thank the Financial Secretary for his explanation of the circumstances that lie behind the new clause. It elaborates on the letter that he sent to my hon. Friend the Member for Chipping Barnet (Mrs. Villiers) and other members of the Committee last week. In the letter, the Financial Secretary said that the estimated cost approached £1 billion, but in his remarks he said that it was £240 million. I appreciate that the Treasury likes to round things up from time to time, but that appeared to be a large rounding up. Will he be a little clearer about the basis of both the figure in his letter and the cost that he cited in his speech?
	My broader concern is that the new clause is drafted widely, as the Financial Secretary acknowledged. We held several debates in Committee about the breadthof anti-avoidance legislation. We had a long debate about the way in which broadly framed legislationwas subsequently narrowed through guidance. I was therefore disappointed, given the circumstances that gave rise to the new clause, that the provision was not more tightly drawn to attack the specific abuses that he highlighted of group companies, the use of dividends and so on as a means of generating management expenses. I wonder why he feels the need to phrase the new clause so widely. Are not we in danger of creating uncertainty among taxpayers and their advisers through the breadth of the provision? Cannot we have a more specific provision to tackle the abuse that he mentioned?

David Gauke: I do not intend to detain the House and impede the speedy progress that we have achieved so far. I am grateful for the Financial Secretary's comments about new clause 1 and the fact that he accepts the principle behind it. Indeed, in his letter to my hon. Friendthe Member for Chipping Barnet (Mrs. Villiers), he acknowledged that it was a valid change. I do not wish to have a row about whose drafting is better; I fully accept new clause 13. I do not know whether it is a sign of a new, listening Government or whether it is asign of a new, listening Treasury. None the less, new clause 13 is welcome, and consequently the Opposition have no intention to press new clause 1 further.

Madam Deputy Speaker: With this it will be convenient to discuss the following: No. (a), line 2, leave out '(a)'.
	No. (b), in paragraph (a), leave out 'either of'.
	No. (c), in paragraph (a), leave out from 'compatibility' to end of paragraph (b).
	New clause 7— Limitation on use of retrospective taxation legislation
	'(1) It is the duty of a Minister of the Crown to refrain from bringing retrospective taxation legislation before Parliament unless one of the conditions mentioned in subsection (2) is satisfied.
	(2) The conditions mentioned in subsection (1) are—
	(i) that it appears, whether as a result of a judgement given by a court or otherwise, that some part of the law relating to taxation no longer conforms to the reasonable expectations about its effect previously held by taxation practitioners and that it is necessary to restore the position retrospectively in order to protect the interests of the general body of taxpayers;
	(ii) that HMRC becomes aware of a new tax avoidance scheme and it is necessary, in order to prevent a significant loss of tax revenue, to amend the law retrospectively.
	(3) In subsection (2) "taxation practitioners" includes the Treasury, HMRC, the accountancy profession, professional tax advisers and groups representing the interests of taxpayers; and "tax avoidance scheme" has the meaning given in the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2004 or the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006.
	(4) In this section "retrospective taxation legislation" means legislation which—
	(i) introduces any new tax, impost or duty, or increases the rate or extends the incidence of any existing tax, levy, impost, or duty; and
	(ii) takes effect on a date earlier than the date on which the relevant enactment enters into force.
	(5) For the purposes of subsection (4) it is immaterial whether a Minister gives notice, whether in Parliament or otherwise, of his intention to introduce a retrospective taxation provision which takes effect on a date after the giving of that notice.
	(6) In subsection (4)(i) "extends the incidence of any existing tax, levy, impost or duty" includes the removal or attenuation of any relevant relief or drawback.
	(7) In subsection (4)(ii) "takes effect" includes the creation of a liability or obligation to account for any increased charge to tax resulting from a provision of the kind mentioned in subsection (4)(i), whether or not the date on which the increased charge falls due for payment precedes the date on which the relevant enactment is expressed to enter into force; and in this subsection "account for" includes any decision by a company or business undertaking to absorb or pass on in the form of higher customer prices or charges the additional costs to that company or business undertaking arising from the increased charge to tax.
	(8) A taxation provision introduced under the Provisional Collection of Taxes Act 1968 is not to be treated as having retrospective effect for the purposes of this section unless the date on which the relevant resolution of the House of Commons under either section 1 or section 5 of that Act is expressed to take effect is a date earlier than the date on which the resolution under section 1 or, as the case may be, section 5 is passed.'.

Paul Goodman: We have been proceeding so far on the amiable basis of consensus. I hope that we can go further and hear shortly that the Financial Secretary accepts the new clause. It aims to forestall and prevent creeping retrospection from polluting the Government's finance legislation. I intend to speak to it, as well as to the amendments tabled by my hon. Friend the Member for Christchurch (Mr. Chope) and others, and to his new clause 7.
	New clause 2 arises directly from the debate in the Committee of the whole House about air passenger duty in relation to clause 12. I do not intend to repeat the debate that we had on 1 May, but as the new clause deals with retrospection and as retrospection was present in clause 12, I must necessarily set the context that gives rise to the amendment. The definitive statement on retrospection in relation to clause 12 was made by the Treasury Committee as follows:
	"The first element of retrospection is that airlines will be liable to pay the tax for departures on or after 1 February 2007 regardless of whether tickets were purchased before the new rules were announced. The second element of retrospection is that the liability to pay air passenger duty at the new higher rates will effectively be incurred before the House of Commons has authorised the increase; such authorisation will take place only after the Budget."
	It is worth noting that two separate though related ideas of retrospection are described by the Select Committee in that context. It concluded:
	"As a general rule we consider that, where increases in rates of duties or taxes are proposed in the pre-Budget report, those increases should not come into force until after the House of Commons has had an opportunity to come to a formal decision on the proposed increase following the Budget. We draw the attention of the House of Commons to the unusual timing of the implementation of the increases in air passenger duty, for which the Treasury has not cited any relevant precedents."
	The Financial Secretary subsequently offered two precedents—the supplementary charge on North sea oil announced in the 2005 pre-Budget report, which was introduced with effect for accounting periodsfrom 1 January 2006, and the increase in fuel duty announced in the 2006 pre-Budget report and implemented from midnight. However, the House of Commons Library said that
	"it is arguable that these examples do not provide a precedent that captures all the aspects of the rise in APD rates".
	In the debate on 1 May, I set out why that is so.
	During that debate and in a previous letter to the shadow Chief Secretary the Financial Secretary set out a series of further claimed precedents—the 2002 Budget decisions in relation to income tax rates, and another similar change made to the taxation of North sea oil, the petroleum revenue changes made in 1978 and confirmed in 1979. He was unable to explain why all these claimed precedents were not originally given to the Select Committee. He was also unable to explain why they were being dribbled out in this gradual way, rather than being offered all at once in a coherent whole.
	I suspect that the explanation is that the Treasury has been forced to scrape the bottom of the barrel for these precedents, and my suspicion is given at least some backing by the Library, which is no more impressed by the new set of precedents than it was by the old ones. Having been consulted, it repeats:
	"It remains the case that none of these examples provide a precedent that appears to capture all the aspects of the rise in APD rates".
	The readiness to reach for retrospection in relation to APD, the failure to offer precedents to the Select Committee and then to discover them afterwards,and the insubstantial nature of the precedents, all considered together, send a dangerous signal to taxpayers, consumers, businesses and tax practitioners. If the Government are prepared to legislate retrospectively and unprecedentedly once, and in doing so, drawing a rebuke from the Select Committee, what is to prevent them from using this unprecedented APD rise as a further precedent in the future? It is in order to prevent them from doing so again that we have tabled the new clause. In the Committee of the whole House, I said:
	"We intend to table a new clause at a later stage which will prevent the Chancellor's successor from behaving in the same way in relation to APD".—[ Official Report, 1 May 2007;Vol. 459, c. 1435.]
	I believe that the new clause would indeed prevent the next Chancellor from behaving in the same way again.
	The amendments tabled by my hon. Friend the Member for Christchurch, together with his newclause 7, seek to remove any remaining element of doubt. I shall explain to him shortly why we look sympathetically at his proposed amendments (a) and (c) to new clause 2 and at new clause 7. I shall also explain shortly why we have some reservations about his amendment (b).
	Before I do so, however, let me explain the basis of new clause 2. In drawing it up, we have attempted to find a basis for legislating in relation to retrospection that will command a consensus in the House. Let me make it clear that we are not against retrospective taxation per se on all occasions. It is reasonable to tax retrospectively in order to tackle a new tax avoidance scheme that threatens a significant loss of tax revenue, for example, or to restore the law in relation to some particular aspect of taxation to what it was believed to be until a court decided otherwise.
	That view was set out by my right hon. Friend the Member for Charnwood (Mr. Dorrell) as a Minister in the last Conservative Government. He said:
	"Where it is discovered that the tax law does not have the effect that the Government and taxpayers generally thought it had, there are circumstances in which it is right to introduce legislation to restore the position retrospectively to what it was thought to be. This is done only in exceptional circumstances and where the Government consider such action is necessary to protect the interests of the general body of taxpayers."—[ Official Report, 29 June 1992; Vol. 210, c. 378-79W.]
	The conventions that govern the use of retrospection in relation to tax avoidance were set out in the so-called Rees rules, named after our former colleague Peter Rees, now Baron Rees of Goytre—I hope that I am pronouncing that correctly—in 1978. In 2004, the Paymaster General made a statement of the Government's view that is broadly similar to what I shall name, after my right hon. Friend the Member for Charnwood, the Dorrell doctrine. At present, the Government are entitled to collect new taxes prior to receiving full legislative authority from the passage of a Finance Act under the Provisional Collection of Taxes Act 1968. The trigger, so to speak, for the retrospective APD rise—the cause of this debate—was the passing of the Budget resolutions announced on Budget day.
	Under new clause 2, any Minister introducing aBill that contains retrospective taxation, such as the Finance Bill before us, would be obliged by law tostate that such retrospective taxation was, in effect, consistent with the Dorrell doctrine set out under the previous Conservative Government and echoed in the Paymaster General's 2004 statement. If the new clause were on the statute book now, the Financial Secretary would have been compelled during the debate on1 May to concede that the retrospective elements of the APD rise contained in this year's Finance Bill were utterly inconsistent with the Dorrell doctrine andbad practice, since even the Government have not attempted to claim that the APD rise was necessary to prevent tax avoidance by passengers or airlines or to restore the law to what it was previously believed to be. I believe that the Financial Secretary would not have endured the embarrassment and difficulty of so doing, and that the new clause is a strong deterrent to bad retrospective legislation.
	As I said, the amendments tabled by my hon. Friend the Member for Christchurch and his new clause 7 seek to remove all possible doubt. His amendments would bar Ministers from proceeding with retrospective tax rises that they declare inconsistent with the Dorrell doctrine. As my hon. Friend knows, we considered tabling a new clause identical to new clause 7 that would have had the same broad effect as his amendments. We decided not to do so for a single reason: the Financial Secretary should have the opportunity this afternoon, we hope in the course of accepting the new clause, to persuade the House that there are some categories of retrospective legislation that are incompatible with the Dorrell doctrine, but that it would none the less be right for the House to be able to consider in the future. My hon. Friend's amendments and new clause would have the effect of barring the House from considering any such retrospective legislation in future. However, I have to say to him and to the House that I very much doubt whether such categories exist and whether the Minister can make such a case. As I have said, that is why we are sympathetic towards amendments (a) and (c) andnew clause 7. If new clause 2 is passed, we will accept amendments (a) and (c), unless the Financial Secretary can persuade us otherwise. If, having accepted amendments (a) and (c), new clause 2 is none the less unsuccessful when put to a vote, I will advise my right hon. and hon. Friends to vote for new clause 7.
	We have some reservations about amendment (b). New clause 2(1)(b) would permit a Minister to introduce a retrospective tax measure as good practice that would either close a significant new tax-avoidance loophole or restore the law to what it was previously believed to be. New clause 7 maintains that either/or principle. However, amendment (b) takes a different view. Taken with the other amendments, it would permit a Minister to introduce a retrospective tax measure only if it both closed a significant new tax-avoidance loophole and restored the law to what it was previously believed to be. In other words, a Minister would not be able to introduce a retrospective tax measure to close a significant new tax loophole unless they were also restoring the law to what it was previously believed to be and vice versa. Accordingto the Library, the last Conservative Government legislated retrospectively to restore the law to what it was previously believed to be in two cases—section 62 of the Finance Act 1987 and section 116 of the Finance Act 1989. I have been advised that had amendment (b) been in force, the last Conservative Government might not have been able to act in that way.
	In conclusion, it seems reasonable for the Government to retain the power to close significant new tax-avoidance schemes immediately, subject to the Rees rules, but I will listen closely to my hon. Friend the Member for Christchurch.

Helen Goodman: I am particularly pleased to discuss new clause 2, because I spoke in the debate about air passenger duty on 1 May. Unfortunately, I was not a member of the Committee that considered this year's Finance Bill Committee—I do not know whether I should call it a Public Bill Committee or a Standing Committee.
	The hon. Member for Wycombe (Mr. Goodman) has made a speech that is characteristic of his virtues—he displayed diligence, thoroughness, hard work, persistence and civility—but he is absolutely wrong for all the reasons that my hon. Friend the Financial Secretary will explain shortly.

Julia Goldsworthy: I was expecting more, but the consensus appears to have broken down at an early stage in the afternoon.
	I am sympathetic to the principle behind newclause 2. It is important to have openness and honesty about retrospective taxation and, in fact, any changes in the tax system. I was reassured by the comment of the hon. Member for Wycombe (Mr. Goodman) that the objective of the new clause is not to remove at a stroke all retrospective taxes, but to state as a principle that there should be an effort to ensure that such taxes are introduced for all the right reasons.
	I am sure that the hon. Member for Bishop Auckland (Helen Goodman) remembers that both this year and last year the Finance Bill included some retrospective taxes, which it was necessary to introduce without consultation because of significant abuses of the taxation system and loopholes that needed to be closed. On that basis, such measures are entirely necessary. However, there are examples—air passenger duty is not the only one—where it is not clear whether a loophole needed to be closed or that avoidance was taking place. On air passenger duty, people who paid for their tickets before the changes were introduced found out that there was an additional charge only when they arrived to catch their flights. It would have made much more sense to examine whether the measure fulfilled the criteria before its implementation.
	Retrospection might cause problems for taxpayers in two other areas, which might need to be looked at more widely, and where greater openness might be preferable. The first concerns the agricultural buildings allowance, which was dealt with in this year's Finance Bill, changes to which will have an impact on investment decisions that were made anything up to 24 years previously. In theory that affects only taxation going forward, but it will have an effect on decisions that people made many years previously with regard to buildings that it is not easy to dispose of if the tax liability represents a significant problem to the businesses involved. I hope that the Minister will be able to assure us that there is at least agreement in principle that clarity on such issues would be welcome.
	The second area where there are concerns about people being caught by changes to the taxation system as a result of a lack of awareness arises from changes in last year's Finance Bill to the inheritance tax treatment of trusts to which people had signed up. To this day, many people may not realise that they have been caught by some of those changes.
	Those are our broad areas of concern and we are sympathetic to the point made by the hon. Member for Wycombe.

Christopher Chope: I thank my hon. Friend the Member for Wycombe (Mr. Goodman) for his open and transparent discussion of these issues with me over many weeks. When I first raised the matter in the Budget debate I found myself in a minority of Conservative Members voting against air passenger duty. However, I overheard one of my colleagues saying, "Since when has it been Conservative party policy not to vote against retrospective legislation?" That voice, which seemed at one stage to be unheeded, has now been heeded, and I am grateful to my hon. Friends on the Front Bench for making that clear by moving new clause 2.
	My amendments to new clause 2 and my newclause 7 go a little further, but the effect is that my hon. Friend and I have launched a pincer-movement on the Government. If the Minister can come up with some categories that are not consistent with the Dorrell doctrine beyond those set out in subsection (7) (i) and (ii), he will be able to use that argument against supporting my new clause, but if he does not do so,the way will be open for the House to support new clause 7.
	I put my amendments and new clause in an alternative form, and I am sorry that my hon. Friend has a little trouble with my amendment (b). I thought that if the word "either" was removed and we could then get rid of the word "or", it would be better English. However, I take my hon. Friend's point that by removing the word "of" as well from line three, that would have the effect of suggesting that both the relevant principles would have to be satisfied rather than just one.
	The only point that I can make to counter that is to say that if at some stage in the future the Government came up with extra relevant principles of good practice, it would be possible to amend subsection (7) by adding extra relevant principles, but it would not be so easy to do that if we had the words "either of", because that suggests that there can only ever be two principles. However, I do not want to go to the wall on that, and I am happy to accept what my hon. Friend says on amendments (a) and (c) and on new clause 7.
	This episode has caused an enormous amount of angst among the travelling public and among well-established and successful businesses. For the sake of just over £100 million, the Government were prepared to tear up the conventions relating to retrospective taxation and to introduce a retrospective increase in air passenger duty that has caused an administrative nightmare and that was wrong in principle. Many passengers felt aggrieved that, although they had paid their fees to the airline, when they got to the airport, or perhaps before that, they had to pay an extra tax, because the tax had been increased between their making their booking and taking their flight.

Christopher Chope: The point of introducing the hon. Lady's argument was that I have heard the Minister speak on this subject many times in the past, and I have yet to be convinced by what he has said. The hon. Lady has obviously read the different speech that he is going to make in response to this debate.
	In essence, we have caught the Minister in a pincer movement. If he accepts that principles should be attached to retrospective legislation, and that those should be enacted in statute for the protection of the public and to introduce certainty, the two categories set out in the new clause tabled by my hon. Friend the Member for Wycombe make that clear. If the Minister thinks that an extra category should be included, let him say so. The problem with new clause 2 is that it is only declaratory—it would be possible for the Minister to make a certificate that a piece of legislation wouldbe retrospective, notwithstanding those two principles. My alternative new clause would prohibit the introduction of retrospective legislation that did not comply with those two principles.
	Whichever way the Minister argues, we will gethim. I am grateful to my hon. Friend the Memberfor Wycombe—the work that we have done together augurs well for the work that we will continue to do together when we get into government.

John Redwood: I am a company director and have listed my interests in the Register of Members' Interests.
	For my hon. Friend the Member for Christchurch (Mr. Chope), the debate arose out of the extraordinary decisions on air passenger duty, on which retrospection was clear, flagrant and undesirable. The new clause, however, relates more widely to the whole gamut of the Government's tax activities. Among my constituents, especially those who are in businesses, who run their own businesses or who have some savings and investment income, there is a growing feeling that things are no longer fair and sensibly run, as they were a few years ago. I am not making a party political point—people felt that things were fairly administered during the first five years of this Government, as they did under the previous Government. I therefore welcome the new clause of my hon. Friend the Member for Wycombe (Mr. Goodman), and the amendments to it from my hon. Friend the Member for Christchurch, as they could go a little way to reassuring my constituents.
	The problem is now considerable. My many law-abiding constituents with business interests or savings activities know that they should make an honest declaration of what they are earning or of their savings in the required form, and they accept that they should pay tax. They also believe that they have every right to make intelligent use of fiscal incentives from tax breaks, and some of those offered by the Government in previous Finance Acts have been very attractive, such as the decision to allow more favourable taxstatus to small business incorporation. Having made intelligent use of those things, they fear that the Government will come down on them like a ton of bricks, saying, "We didn't really mean it. Oh, goodness me, the fiscal incentive was too successful," and will find a way of clawing it back and blaming them for having responded rationally to the signals sent out in tax legislation a few weeks, months or years previously.
	The Minister must agree that the Government are happy for people to take advantage of tax breaks and fiscal incentives. A series of radio advertisements are currently running on various channels about National Savings and Investments. The whole point of the adverts is that people can be protected from the rather high rate of inflation now prevailing under this Government, and from their tax demands, by buying index-linked National Savings bonds, which, miraculously, are protected from both the ravages of inflation and the depredations of the taxman. That is a perfectly good selling point. I am not here to advertise those bonds today, but it shows that the Government recognise the importance of fiscal incentive in selling savings products and are happy to use it. Having taken advantage of some other fiscal incentive, my constituents therefore feel that it is unfair of the Government to turn round, decide that it is a loophole that is allowing too much revenue to be lost, and try to change things retrospectively.
	It was right to mention trusts, because last year's Finance Act contained a good deal of retrospection in relation to people who had taken good accountancy and legal advice, set up trusts and then discovered that the Government were no longer prepared to live with that, and effectively wanted to unpick it retrospectively. In support of my hon. Friends the Members for Wycombe and for Christchurch, anything that can be done to make the tax system a little fairer and predictable for the many law-abiding, decent citizens trying to live under it would be welcome.
	If I have a worry, it is that there are still big loopholes for the Government in the generous drafting that the Conservative Front Bench has come up with, but I am happy to support the new clause because the statement of intent is clear and it is a move in the right direction. However, I hope that this group of Ministers, or their soon-to-be-announced successors, will understand that there is a growing feeling of displeasure about the unreasonable behaviour of the Revenue. People who honestly want to pay their taxes, but who want to take advantage of sensible fiscal incentives, no longer feel that they will be able to do that, or they feel that they will be penalised retrospectively.

John Redwood: My hon. Friend is right and makes an important part of my case. The people I have in mind cannot hire expensive accountants or lawyers for either their personal or their small business affairs. It gives them a greater feeling of injustice because they think that there is law and justice for the very large companies. Those can take the best legal and accountancy advice, and may succeed in winning the case or may have enough cases going forward so that, on the law of averages, they come out of it all right. Law-abiding decent people who run small businesses or who try to put together their savings for retirement do not have that option. Only one case may matter to them, and they will probably lose it. There is the feeling that the Revenue is out to grab as much money as it can from any law-abiding person who advises it that hehas a bit of money, rather than the Revenue sensibly following the rules laid down by Ministers and not going in for retrospective changes.

Brooks Newmark: I wish to speak briefly in support of the principle of good practice for retrospective taxation enshrined in new clause 2. I draw Members' attention to my entry in the Register of Members' Interests.
	Debating the principles of retrospective taxation reminds me of the heady days of Standing Committee Dconsidering the National Insurance Contributions Bill. The debate revolved to a large extent around this principle and its boundaries, although, as we found out, the principle was being made up on the hoof and the boundaries were anyone's guess. Fine wines and platinum sponges featured strongly, and they certainly made for hedonistic debate, although since the latter have a more prosaic function in catalytic converters, it is perhaps appropriate that the catalyst for new clause 2 was the introduction of retrospective environmental taxation.
	I spoke then about the dangerous precedent of backdating tax changes to coincide with an expressed intention to legislate. We should not be encouraging a state of play whereby tax changes are effectively implemented by ministerial statement and then rubber-stamped by legislation at a later date. Worse still, we should not require sections of the financial services industry routinely to thumb through  Hansard to check whether the Paymaster General has said anything threatening—which I know is not her usual practice, but which has occurred from time to time.
	I am pleased that subsection (4) addresses specifically the practice of announcing things to Parliament and using them as the peg on which to hang retrospective taxation. It might make for convenient government, but it sends all the wrong signals.

Brooks Newmark: My hon. Friend makes a valid point, and it follows on from the excellent one made earlier about small businesses that do not have on their payroll the sort of people who can do the Government's dirty work for them and identify such problems coming down the track.
	I also welcome the two principles set out in new clause 2(7), which propose that the Government keep their powder dry on retrospective taxation unless itis needed to address a conflict that has arisen with "reasonable expectations", or to guard against a new tax avoidance scheme that would lead to a loss of revenue. The Government should look again at whether it might not be timely, after 22 years of the Ramsay case, to review the distinction between legitimate tax planning and illegitimate tax avoidance.
	Without wishing to wander too far from the new clause, I hope that the Government will take this opportunity to reaffirm a commitment to certainty in the tax system. Adam Smith, the second most famous economist to come out of Kirkcaldy, wrote in his "The Wealth of Nations" that
	"the tax which each individual is bound to pay ought to be certain and not arbitrary. The time of payment, the manner of payment, and the quantity to be paid ought to be clear and plain to the contributor and to every other person."
	That is a fine statement of principle, although it is perhaps a little too well written ever to make it on to the face of a Finance Bill.
	It is a pity that none of the events that the Chancellor has sponsored at No. 11 Downing street over the years took its cue from the Adam Smith Institute, but I hope that the Government will see fit to endorse the principle underlying new clause 2.

John Healey: The provision was not retrospective, but it is true that it applied to tickets booked before as well as after the announcement on 6 December, just as air passenger duty applied when it was first introduced in 1993, as did the changes made to the duty in 1996 and 2000.
	My hon. Friend the Member for Bishop Auckland (Helen Goodman) did not look too disappointed when I broke the news that she was not to be a member of the Finance Committee this year. However, we missed her during the six weeks we spent scrutinising the Bill and discussing it in detail.
	I respect the way in which the hon. Member for Christchurch (Mr. Chope) again raised the retrospective taxation issue. He is absolutely assiduous in doing so, and not just in the Chamber; he and I have debated the issue in Westminster Hall, too. His arguments seem to be making more headway on his Front Bench than on the Treasury Bench, although he and his Front-Bench colleagues obviously do not entirely see eye to eye on green taxes and environmental policy in general. The hon. Gentleman is right: his Front-Bench colleagues did not support him when he moved a similar proposition on air passenger duty in the Committee of the whole House. However, they seem to be lining up to support him on this occasion. Perhaps we should not be surprised—we are getting used to rapid and dramatic shifts of policy position on the Opposition Front Bench.
	The hon. Member for Falmouth and Camborne (Julia Goldsworthy) referred to agricultural buildings allowance and the trust legislation—concerns that were also mentioned by the hon. Member for Dundee, East (Stewart Hosie). I encourage the hon. Lady to consider that there could be no legitimate expectation that the law relating either to agricultural buildings allowance or to the taxation of trusts would remain unaltered indefinitely. The right hon. Member for Wokingham (Mr. Redwood) touched on whether the trusts legislation was retrospective. The tax changes on the treatment of trusts were not retrospective; they may, and do, apply to trusts that have been previously established, but only for future years. That is not retrospection in any serious sense of the word.
	New clauses 2 and 7 would restrict the use of retrospective tax law far beyond existing domestic and European Court of Human Rights precedents and would have effect in respect of a wider range of tax provisions than Members might realise. New clause 7 in particular would severely restrict the Government's ability to react to changing circumstances to protect the Exchequer.
	Let me stress that the Government take the use of any retrospective tax law extremely seriously. Before introducing the Finance Bill to the House of Commons, the Chancellor is required to certify that it is compatible with the European convention on human rights, which he does only after he has sought advice from Her Majesty's Revenue and Customs and other departmental lawyers. That ensures that every provision in the Bill is scrutinised carefully and an assessment is made as to whether it complies with the rights conferred by the convention.
	As Members will be aware, the main constitutional conventions on retrospective tax law are known as the Rees rules, which require a Minister to make a full announcement to the House when introducing fiscal changes that have effect on a date before the enabling legislation will be enacted. Over the past 10 years, the Government have used and followed those rules, just as previous Governments did on many occasions.
	The hon. Member for Wycombe referred to the statement made by my right hon. Friend the Paymaster General in 2004 when she set out an approach to tax avoidance schemes—tough but necessary arrangements—that were subsequently supported on both sides of the House. I think that all hon. Members might concede that tax decisions often have to recognise a wide range of economic, social or environmental factors, and sometimes we face factors that change rapidly and constantly. Of course, those factors have to be balanced with the need for certainty and the need to respect the rights of taxpayers to understand their position—including compliance with the provisions of the Human Rights Act 1998. We are satisfied that the balance that we have built into the current parliamentary framework is sufficient to deal with the situations we face.
	As the hon. Member for Wycombe explained to the House, new clause 2 seeks to enshrine in legislation elements of existing convention and best practice. New clause 7 seeks to go further than new clause 2 and rows back from existing convention and best practice. Together, they would restrict the ability of the tax system to respond to changing circumstances and, on occasions, to avoidance threats. New clause 7 seeks to impose wholly impractical restrictions by makingit a duty of Treasury Ministers not to bring before Parliament retrospective tax provisions, whether in the Finance Bill or otherwise, that do not comply with certain conditions set out in the clause.

John Healey: If the right hon. Gentleman will bear with me, I will come on to the sort of problems that would be caused by the flawed way in which the provisions in new clauses 2 and 7 are framed.
	There are many precedents, going back many years, for Acts of Parliament and resolutions that take effect from dates before the date on which they are debated and voted on by the House. Subsections (7) and (8)of new clause 2 set out conditions under which retrospective tax law would be compatible with subsection (1). Subsections (2) and (3) of new clause 7 set out the same conditions under which retrospective tax law could be introduced in accordance with subsection (1). The first condition is that some event—most likely a court judgment—has changed the interpretation of the law contrary to "the reasonable expectations" of "tax practitioners". That phrase is defined in new clause 2(8) and new clause 7(3). A moment's thought would encourage one to conclude that it would be extremely difficult to determine what the reasonable expectations of such a diverse body as tax practitioners would be.
	The second condition in both new clauses is that a scheme has been disclosed to Her Majesty's Revenue and Customs. I think that this is the point that the right hon. Member for Wokingham was making. However, although the term "tax avoidance scheme" appears in the titles of the legislation referred to in the new clauses, it is not defined anywhere in UK legislation. The descriptions used in primary legislation—principally in part 7 of the Finance Act 2004—and in regulations are targeted at avoidance, but they do not define it. In effect, they are proxies for new and innovative schemes, as these often carry the highest risk of avoidance. But not every scheme that is notifiable is avoidance and, equally, since the descriptions must strike a balance between countering avoidance and imposing unnecessary or burdensome responsibilities on business, they will not capture every avoidance scheme.
	New clause 2(6) and new clause 7(7) would further give the provisions effect in situations where the tax change may affect a pricing decision that has already been made by a company, even when the measure applied only to tax points that occurred after the measure had been passed by the House. It cannot be the case—although it appears to be from the way in which the provisions are framed—that hon. Members seriously propose that the House should be alerted in any case in which a change to tax rates has an impact on a commercial decision or arrangement that has already been entered into. Again, a moment's thought would lead one to suggest that that might apply to virtually any tax change. In general, any tax change has the potential to have an impact on such decisions.
	It is difficult to envisage why the provisions are necessary. The Chancellor must certify that any retrospective measure is human rights-compatible. Parliament has the ability to consider all the factors raised in the new clauses when debating such a measure. The drafting of the new clauses is fundamentally flawed. The measures would have far wider consequences than even the hon. Member for Christchurch might intend. Following the reassurances that I have given, I hope that neither of the new clauses will be pressed to a Division. If they are, I shall have to ask my hon. Friends to resist them.

Paul Goodman: The debate has demonstrated the widespread concern throughout the House about creeping retrospection, as was evident from the comments made by my right hon. Friend the Member for Wokingham (Mr. Redwood) and my hon. Friend the Member for Braintree (Mr. Newmark). The hon. Member for Falmouth and Camborne (Julia Goldsworthy) reminded the House of a point that I omitted to make: the issue of retrospection was very live when we considered trusts during our proceedings on last year's Finance Bill. The hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) also made that point. The hon. Member for Dundee, East (Stewart Hosie) was sympathetic to new clause 2. To borrow a phrase from my hon. Friend the Member for Christchurch (Mr. Chope), we are seeing a large pincer movement on the Government.
	I pay tribute to my hon. Friend the Member for Christchurch, who strongly opposes the rise in air passenger duty. He is also concerned about retrospection and I am grateful to him for pressing the issue in such a way.
	My hon. Friend was right about the pincer movement on the Government because the hon. Member for Bishop Auckland (Helen Goodman) said shortly after I finished my speech that she opposed new clause 2, but that her opposition would be justified retrospectively. That set the tone for the debate.She has been joined on the Labour Benches by thehon. Member for Wolverhampton, South-West (Rob Marris). He is in the Chamber retrospectively, given that he was here in spirit right from the start of the debate.
	The Financial Secretary, like the hon. Member for Bishop Auckland, produced a scant argument. He says that the considerations already apply and that new clause 2 is badly drafted, but subsection (1)(b) of the new clause would allow him to introduce any measure and simply claim that it would be justified, despite being retrospective, for the reasons that he wished to set out to the House. However, he did not address that point at all.
	Having heard the Financial Secretary's argument, if new clause 2 were agreed to, I would be happy to accept amendments (a) and (c) to it, which were tabled by my hon. Friend the Member for Christchurch. I would look sympathetically on new clause 7, which he also tabled. We will press new clause 2 to a Division.

'(1) It shall be the duty of HMRC to determine applications for—
	(a) registration for VAT, and
	(b) repayment of VAT by HMRC
	within a maximum period of days from the receipt by them of the relevant application.
	(2) The Treasury must by Order specify the maximum period mentioned in subsection (1), having first consulted HMRC and persons representing small businesses.
	(3) If an application of a kind mentioned in subsection (1)has not been determined by HMRC before the expiry of the maximum period specified by the Treasury in accordance with subsection (2), the applicant may apply to the Special Commissioners for a declaration that the application is deemed to have been approved by HMRC.
	(4) The Special Commissioners must grant an application for a declaration under subsection (3) unless they are satisfied that HMRC has reasonable grounds for having failed to determine an application in accordance with subsections (1) and (2).
	(5) Grounds shall be treated as reasonable under subsection (4) only if they relate to circumstances beyond HMRC's control.'.— [Mr. Gauke.]
	 Brought up, and read the First time.

Mr. Deputy Speaker: Withthis it will be convenient to discuss Government amendment No. 2.

David Gauke: Before I deal with new clause 4, let me say a few words about Government amendment No. 2 and return to the comments made by the Financial Secretary earlier. As he said, on my debut on the Front Bench in Committee, he generously agreed to amend the Bill to require an affirmative resolution where the joint and several liability requirements are to be extended, as in clause 97. He has been as good as his word, and I welcome the amendment.
	New clause 4 would require that the Treasury, in consultation with Her Majesty's Revenue and Customs, specify a maximum period for HMRC to determine an application for VAT registration or VAT repayment. If it were not determined within the period specified, the applicant could apply to the special commissioners for a declaration of approval to be granted, unless the commissioners determined that HMRC had reasonable grounds for failing to determine the application. The reason for tabling the new clause is the widespread and growing concern that VAT applications, whether for registrations or repayments, are taking substantially longer than previously, and substantially longer than the target times specified by HMRC.
	I should say at the outset that I recognise that part of the reason for the delays is action that is being takento try to tackle missing trader intra-Community—MITC—fraud, which has a substantial cost. We recognise and support the Government's view that action needs to be taken. We also accept that, in fighting MTIC fraud, there is a role for ensuring that only legitimate companies become registered for VAT and only companies with clean hands receive VAT repayments. I have received some representations stating that the VAT registration process should have been tightened at an earlier stage in order to address the issue.
	It is not our intention to disrupt attempts by the Government to tackle MTIC fraud. Indeed, newclause 4 is so drafted that if HMRC had good reason for delaying a registration or repayment it would be able to do so, and of course tackling fraud is a good reason. However, I hope that the new clause will giveus a chance to explore whether the problems with registration and repayment are entirely due to MTIC fraud, and whether the balance is right between tackling fraud and ensuring that legitimate businesses are not harmed and that their activities are facilitated. I also hope to explore the question of whether there is any prospect of an improvement in performance by HMRC in this area. I will listen carefully to what the Financial Secretary says when he responds, and if he persuades me that the new clause would harm efforts to tackle MITC fraud, I will not press it. None the less, we wait to hear those arguments.
	Essentially, there are two closely related problems: VAT registrations and VAT repayments. This is not a new issue. I raised the question of VAT registrations last summer in the Standing Committee on last year's Finance Bill. I subsequently raised it with senior HMRC officials when I was a member of the Treasury Committee and they gave evidence on HMRC's performance to the Treasury Sub-Committee. It is worth looking at the evidence that they provided. Paul Gray, the chairman, stated that VAT registrations was
	"one of those areas where we have had probably the greatest degree of pressure and the performance certainly was not as good as I might have hoped".
	His colleague, Mike Eland, added:
	"it is trying to get a balance between facilitating legitimate business and tackling fraud. We did not get that quite right. We put the emphasis on tackling the fraud. We are now looking to correct it the other way by simplifying some of the procedures and also getting better IT backup to carry out some of the fraud checks so that we can do the checking more quickly".
	Mr. Gray and Mr. Eland stated that HMRC was improving but was "not there yet".

David Gauke: I am grateful to my right hon. Friend. I will deal with some of these points in more detail ina few moments. HMRC's standard target is 21 days—15 working days. There may well be circumstances in which additional time is necessary, but at the moment there are regularly delays of three, four, five or six months. That is unacceptable.
	Let me consider some of the performance figures. HMRC accepts that last summer's performance was unacceptable. In June 2006, 109 complaints were made, and in July 2006 the figure was 96. I have the most up-to-date figures from answers to parliamentary questions, which show that the number of complaints had increased to 131 in April 2007 and 133 inMay 2007.
	Perhaps the most important figure is the percentage of applications that were processed within 21 days of receipt. In May, June and July 2006 it was 56, 57 and57 per cent. respectively. Again, the most up-to-date figures that I have are from parliamentary answers. Although in January HMRC officials were looking for a substantial improvement, and recognised that there had been a problem the previous summer, the figure was still a mere 60 per cent.; anecdotal evidence suggests that it may have declined since then. However, even if 60 per cent. of applications are tackled within the 21-day target period, that means that of approximately 280,000 VAT applications a year, some 112,000 are not tackled in that time. That is a substantial number. Given that I believe that the target has been missed by some margin, we are talking about a reasonably major issue.
	The concern was further highlighted last week inan article that John Arnold, the chairman of the tax faculty of the Institute of Chartered Accountants in England and Wales, and Neil Gaskell, its technical manager, wrote. Their introductory remarks are worth quoting:
	"At the Tax Faculty we know that the continuing and unacceptable HMRC delay in processing new VAT registrations is the biggest single VAT issue facing our members and their clients.
	Some registrations are taking over six months to obtain. Smaller businesses are faced with cash flow problems because, without a VAT number, they have difficulty in getting their invoices paid. Larger businesses find restructuring or acquisitions held up; and for everyone, property transactions are delayed if the purchaser needs to become VAT registered".
	They go on to argue that accountants have been running up approximately £100 million worth of chargeable time as a consequence of trying to deal with HMRC's inefficiencies and errors. They estimate that only 20 per cent. is passed on to clients. None the less, the problem affects accountants and clients.
	How bad is the problem according to HMRC? Mr. Arnold and Mr. Gaskell state in their article that HMRC claims that 95 per cent. of applications are processed within 30 days; I remind hon. Members that the target is 21 days. Let us consider the assessment that the accountants make of the various VAT registration offices. They note that Newry takes 30 days, and Wolverhampton takes 34 days to open applications. Performance appears to be slightly better in Carmarthen, but there are no details. Hon. Members should note that we are considering the time taken simply to open applications.
	The accountants' article refers to HMRC's figure of 30 days, although an article in last week's  Financial Times cited 38 days. Does that figure mean that processing takes place 30 days from receipt, or 30 days from opening applications? If it is taking more thana month simply to open applications, we are contemplating serious problems. As Mr. Arnold and Mr. Gaskell say, it suggests that the 30-day claim is somewhat "misleading".
	One of the problems that the tax faculty article identified is the large increase in the number of applications for VAT registration, which the Government's legislation on managed service companies has caused. I am sure that we will revert to that subject later because it has caused a substantial increase—approximately 20,000—in applications. The VAT application officers have simply been unable to cope with that.
	The issue raises several questions, and I would be grateful if the Financial Secretary could answer them. Do the Government accept that performance in dealing with VAT applications is declining? Does the Financial Secretary have any further up-to-date figures? Doeshe maintain that 95 per cent. of cases are tackled in30 days, or 38 days? Does that time run from receipt of applications or opening of applications?
	The accountants have raised concerns about the closure of the Newry VAT office. What will be the effect of that? HMRC appears to have acknowledged that it will cause further delays. What steps did HMRC take to mitigate the problems that the proposals for the managed service companies caused? Was it anticipated that they would cause an increase in VAT applications? What was done to tackle that? Are the problems exacerbated by attempts to reduce HMRC staff? Is that a wider problem in HMRC? Are legitimate companies that are trying obtain a VAT registration feeling the impact of attempts to reduce staff? How targeted are the problems relating to VAT registrations at companies that are in high-risk areas for missing trader intra-Community fraud? The problem appears to be much greater than simply a handful of companies in key high-risk areas, such as mobile phones or specific electronic goods.
	The second cause of concern is VAT repayments. In Committee, I provided several examples of difficulties with VAT repayments. Again, there is clearly a relationship with MTIC fraud; indeed, it is even stronger. The system of extended verification, which has caused delay in several cases, is undoubtedly an attempt—on the face of it, a successful attempt—to tackle MTIC fraud.
	Two statistics are wheeled out. First, in 95 per cent. of cases in which traders are subject to extended verification, participation in or profit from MTIC has been found, or sufficient suspicion exists to warrant further investigation—"sufficient suspicion" in the opinion of HMRC, presumably. There is a distinction between cases in which someone subject to the extended verification system has been found to participate in or profit from MTIC fraud and those in which sufficient suspicion exists. Is it possible to break down the figure of 95 per cent. to ascertain how many traders fall within each category?
	The second figure that HMRC uses is the 1 per cent. of withheld VAT, which is subsequently found to have been correctly claimed and properly payable. The test of "correctly claimed and properly payable" is higher than that for being involved with MTIC fraud. I sought further clarification through parliamentary questions without success about whether it could be argued that an element of the VAT funds that are not being repaid do not relate to MTIC fraud but to a technical, perhaps minor, breach of the claim form. I should be grateful for that further clarification.
	There is a concern that staffing underlies many of the problems, especially those with VAT registration. In Committee, I raised the case of Viking Garages, and a professional adviser to the company pointed out, in connection with VAT repayments:
	"HMRC are putting woefully inadequate resources to the team responsible for authorising repayments" .
	Do the Government recognise that there is a problem, and a staffing issue? If so, what steps will they take to improve the position?
	Both issues hamper legitimate business. There is concern that the delays are preventing us from dealing accurately with MTIC and from taking well-targeted action, but there is broader anxiety that the legitimate needs of legitimate business have not been facilitated by HMRC. New clause 4 highlights and attempts to address those concerns. For 12 months, professional bodies and members of the Conservative party have sought to improve something that HMRC has recognised is a serious problem. I hope that the Financial Secretary accepts that there is a problem, and will provide reassurance that those concerns will be addressed.

Philip Dunne: I support the powerful case made by my hon. Friend the Memberfor South-West Hertfordshire (Mr. Gauke) for new clause 4, particularly on the repayment of VAT. Some 1.8 million businesses are VAT- registered, and they submit 7.6 million assessments each year. In the year ending March 2006, 85 per cent. of those assessments were paid on time, which means that a substantial number were not. The new clause would assist the Revenue in sharpening up its act, and would both help it to catch up with those who have not paid their VAT bill on time and ease the burden on businesses that have not received their repayments on time. In the absence of such a provision, the Revenue has paid insufficient attention to the efficiency improvements that are needed following its combination with Customs and Excise.
	The Revenue is quick to fine businesses that do not submit their returns on time. Indeed, if a business is two weeks or more late in filing its return, a default fine is automatically imposed. In the year ending March 2006—the latest year for which figures are available—the Revenue issued 250,000 late filing penalties, which is an increase of 10,000 on the previous year. The total value of VAT-related penalties earned by the Revenue that year was £270 million. That is a significant source of tax revenue, which HMRC could clearly increase, given the proportion of fines that have not been paid. However, there is an imbalance, as HMRC's performance in refunding overpayment is not subject to anything like such rapid equivalency. Indeed, businesses can apply for compensation only once an inquiry launched by HMRC into VAT irregularities is completed. As we heard from several hon. Members in Committee, that may take a very long time indeed, even for businesses that trade legitimately and supply the information requested by HMRC. They do not receive such payments as a result of HMRC's inefficiencies.
	I am dealing with a constituency case that involves a company whose VAT payment for March 2006 is under investigation. It was not notified of the investigation until six and a half months later, in mid-October. An overpayment had been made, so the Revenue may have suspected MTIC fraud—indeed, it transpires that that was the case—and it launched an inquiry. Fourteen months later, the company is still waiting for the inquiry to conclude. There is a catalogue of errors in HMRC's systems, with which I will not bore the House—but to illustrate the challenges facing companies I should explain that that business, having failed to receive a refund of the significant overpayments in its March return and its subsequent May return, received a demand from the Revenue regarding the non-payment of corporation tax. The Revenue decided to pursue the company through the courts for the tax, which amounted to roughly 20 per cent. of the VAT overpayment due to the company. The company got into cash flow difficulties as a result of the Revenue retaining its funding, and business more or less ceased. It was only as a result of my intervention with Mr. Gray at HMRC that the Revenue backed down from its demand for corporation tax and stopped pursuing the company into liquidation through the courts. Fourteen months later, however, despite repeated correspondence with Mr. Gray on the company's behalf, there is no resolution in sight.
	If the Government accepted the new clause, the Revenue would be obliged to report regularly on its performance, so it would have a salutary effect both on the way in which HMRC chases up people who default on payments and on cases in which overpaymentshave not been refunded. As a final illustration, mayI rehearse for the House a point that I made in Committee about online filing and HMRC's woeful performance in meeting its own targets? By March of this financial year, HMRC aims to achieve a targetof 50 per cent. of VAT returns filed online. As of March—the end of the last financial year—only 9 per cent. of returns were filed online. The new clause would encourage substantially greater efficiencies in HMRC, so it should be supported.

Julia Goldsworthy: I shall be brief, because the hon. Member for South-West Hertfordshire (Mr. Gauke) outlined very clearly a significant problem in VAT registration and repayment. It is important to underline the impact of such problems on businesses. Hon. Members have given examples of businesses that have ceased trading as a result of delays, so we should not underestimate the problems on the ground. As always, it is difficult to balance the interests of law-abiding businesses with the need to tackle the fraudulent endeavours of people trying to cheat the system. Liberal Democrats have always made it clear that they are sympathetic to the Government's efforts to tackle the issue. MTIC fraud is a significant problem that costs the Treasury billions of pounds a year, so we support the Government's efforts to introduce a reverse charging system to overcome it.
	I am sympathetic to the intention behind newclause 4, but I wonder whether it is too bureaucratic. If HMRC officials are already struggling to deal with repayment applications, the provision might make the spiral even worse. If I have any hesitation, it is about the fact that the proposal may be more time consuming for officials who are struggling to cope with the new measures that have been introduced as a result of reverse charging and the verification process. They are trying, too, to cope with restructuring and staff cuts, which have had a wider impact on the system. I should be grateful if the Minister told the House the average time that it takes an HMRC official to process applications for repayment and to deal with verification.
	Finally, I do not know whether the Minister will accept the new clause, but businesses are seeking genuine assurances from him that the wider HMRC reforms and efficiency changes will not have a negative impact on their ability to complete the VAT verification process or to seek repayment. Efforts to counter MTIC fraud should not affect law-abiding businesses. Above everything else, with respect to the hon. Member for South-West Hertfordshire, who tabled the new clause, ultimately that is what small businesses seek from today's debate.

John Redwood: Business is looking for greater speed and greater co-operation from all parts of Government, and I am delighted that my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) has highlighted the need for improved performance in the important area of VAT refunds and VAT registration. The asymmetry has already been illustrated in one respect. If a business files late, there is an automatic penalty. If the Revenue and Customs is late in returning, that is bad luck on the business concerned.
	There is another asymmetry that is relevant and extends more widely across Government: the asymmetry between the standards now expected of a world-class business in terms of error and delay, and the standards that we have grown used to expecting from Government. A world-class business would think it bad to have an error rate as high as 0.1 per cent., and it would expect very little delay in service or product delivery to its customers, yet we are discussing an organisation where 40 per cent. of the initial registrations and 14 per cent. of the refunds are delayed. Those are massively large figures representing millions of cases of late refunds over a reasonable period, which would not be acceptable in the private sector.
	It is Government's job and a Minister's task to engage with senior officials and administrators to try to lift Government standards to something like those that world-class competitive businesses must hit or go out of business. As we have heard, small businesses and some big businesses can be extremely embarrassed if an important refund is much delayed, because they budget their cash flows to very fine tolerances. If a large cheque from Revenue and Customs is missing, that can make a big difference to the business's future and therefore to the jobs represented by that business.

James Duddridge: I thought that I had left VAT returns behind when I moved from business to politics, although as the Financial Secretary knows, I maintain a keen interest in VAT issues as HMRC has three main buildings in the constituency that I represent, two of which deal with VAT issues. With reference to my local VAT office, I have had a number of discussions about job cuts in HMRC, and from the Front Bench my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) expressed concerns about the impact of job cuts on already worrying performance figures. I support new clause 3 in particular, as it is right that we examine the performance figures in detail.
	My second point involves a recent constituency case. A constituent recently visited me who was concerned that an internet-based competitor was selling goods without paying any VAT. I wrote to the Financial Secretary, who took the matter extremely seriously, although for understandable reasons he wrote back to say that he could not correspond about a third company and reveal details. From my investigation of the matter, there seems to be concern in the industry that, because of carousel fraud, the performance figures of HMRC were adversely affected. That was affecting not only repayments and the processing of applications, but other fraud issues relating to VAT. I should appreciate reassurances from the Minister that non-carousel fraud is being investigated equally and that resources are not being sidetracked because of carousel fraud.
	Finally, in my discussions with a number of people about the case that I mentioned, concerns were raised that managed service companies are submitting thousands of new companies for VAT registration on a daily basis. Can the Financial Secretary allay my concerns or puta number on the VAT applications coming through daily and monthly? Will he confirm reports that up to 20,000 applications in bulk have been submitted to HMRC in one day? That would explain some of the performance figures and performance concerns.

Brooks Newmark: When the issue of timely VAT repayment was raised in Committee in the context of MTIC fraud, the Financial Secretary commended me for speaking with some passion on the subject—at least, I think it was a commendation. It will come as no surprise to him, then, that I want to return to it.
	As my hon. Friend the Member for South-West Hertfordshire (Mr. Gauke) told the Public Bill Committee, the problems with timely VAT registration and repayment have been a matter of some interest to the Treasury Committee. The acting chairman and the director general of enforcement and compliance at HMRC both admitted to the Treasury Committee that VAT registration was an area in which HMRC was under considerable pressure.
	However, my interest, or rather my passion, stems from the fact that I have seen the effect that the pursuit of MTIC fraud can have on a business when itcauses significant delay in VAT repayment. I therefore welcome new clauses 3 and 4, because they both improve parliamentary oversight and introduce some form of benchmarking in HMRC's treatment of VAT. However, the first depends on the second if it is to be effective. The value of scrutiny depends, to a large extent, on the existence of benchmarks and standards of reasonable behaviour. That is particularly important in respect of MTIC fraud.
	First, there is a consensus that tackling MTIC fraud is necessary and beneficial. However, the unintended consequence of that consensus is that scrutiny becomes more challenging, because we must be careful that an attack on the effectiveness of the repayment system is not construed as an attack on anti-avoidance itself.
	Secondly, the Government are fond of telling the House how fiendishly complicated MTIC fraud is and how HMRC is engaged in a running battle to outwitits perpetrators. The reasoning is that complication justifies delay. The logical outcome of the endless race between fraudsters and HMRC is that as complication increases, so must delay. That was the essence of the Financial Secretary's argument in Committee. He told me:
	"Given the complexity involved, it is not surprising that the process of focusing on the trading patterns or traders that we suspect are most at risk can take some time." ——[Official Report, Finance Public Bill Committee, 7 June 2007; c. 492.]
	Nevertheless, there remains a point at which delay becomes unreasonable and unjustifiable, whatever the worthy objective behind it. The Financial Secretary cited a figure of 12 months for the completion of verification checks which had been accepted by the courts. If that is truly a reasonable and justifiable delay, let the Treasury specify it in an order, or let HMRC print it in a glossy brochure so that businesses know what to expect.
	Thirdly, the Financial Secretary argued that HMRC's record on MTIC fraud is very good, showing that the Government's strategy on MTIC fraud is well focused. He cited the figure that we heard earlier, that only 1 per cent. of the VAT that had been withheld because of verification was found to be correctly claimed and repayable, but that statistic will be of little comfort to those who are caught up in investigation, and it has no direct bearing on whether HMRC can agree a timetable for verification and then stick to it.
	I raised the issue in Committee because I was worried that HMRC might lack the resources that it needed to cope with the scale of MTIC fraud. Publicised time scales for VAT registration and repayment would assist resource management within the organisation. It would also be invaluable to businesses that rely on prompt VAT repayment in order to maintain a healthy cash flow.
	One of my constituents was a director of a firm that was caught up in an MTIC fraud investigation. My constituent's company supplied mobile phones, and it had exports totalling £60 million in 2006. It waited some 10 months for a VAT repayment claim of£6.7 million to be met while "extended verification" procedures were carried out on its supply chain. Unfortunately, that wait did not have a happy outcome; on 17 January, the company went into administration due to the significant dent in operating cash flow represented by that £6.7 million, which is a substantial sum for a company with a £60 million turnover.
	It is unfortunate to say the least that any company should be driven to the wall in those circumstances. I do not wish to second-guess HMRC's judgment on that particular case, but I do question the process. I suspect that the uncertainty of living month to month while investigations were carried out was the final straw for my constituent. He also told me that he did not think that any investigation was going on for much of those 10 months, as few of his suppliers were even contacted.
	Proposed subsection (3) of the new clause would ensure that HMRC had an incentive to get a moveon, since running out of time would result in a determination in favour of the application. It is better that HMRC should run out of time than a company should go to the wall or go bust having run out of money. What the new clause does not do is prescribe a reasonable time scale. It is quite right that HMRC should, informed by all the relevant operational considerations, advise the Treasury on an appropriate time scale. Once in place, however, that time scale would introduce some accountability and get companies that are being investigated for MTIC fraud out of limbo.
	My final word is a note of scepticism on proposed subsection (5) concerning force majeure. As we heard earlier, Mr. Eland, the director general of enforcement and compliance at HMRC told my hon. Friend the Member for South-West Hertfordshire that HMRC was
	"getting better IT backup to carry out some of the fraud checks so that we can do the checking more quickly."
	Given the Government's woeful record on IT projects, I hope that the routine IT failure will not be brought within their ambit under force majeure.

John Healey: I appreciate that, and even wherethe hon. Gentleman has been very critical of the Government in the thrust of his argument, I accept the manner in which he has put it.
	The hon. Member for South-West Hertfordshire (Mr. Gauke) asked me for specific information on certain important aspects. Let me try to deal with them at the outset, after which I shall come on to the proposals set out in the new clause. First, claims that registration applications have not even been opened are simply not true. Post received by the registration units is opened on the day of receipt. The timetable against which HMRC attempts to manage its operations, which it monitors and then is judged against, counts from the point of receipt of the form.
	On repayments, the hon. Gentleman said that he had been pressing for more information and a breakdown of some of the figures that he and I have discussed previously. In particular, I refer to the process of verification of repayments that may have been linked to MTIC loss where there are grounds for further investigation. In a third of those cases—or, if he likes, 95 per cent. by value—there was firm evidence of links to such fraud. In two thirds—by number, but not value—there are strong indications of such links, warranting further investigation. I hope that that helps him with his question.
	The hon. Gentleman asked about the closure of the Newry office, and indeed about the proposals to close the Carmarthen office as well. That is part of a long-term process of making sure that, as in other parts of government, we can deliver the services that are required—by taxpayers, in this case—better, but do so more efficiently with the resources that we have. That is part of a long-term process of reducing delays and backlogs. Increasing capacity at Wolverhampton and Grimsby will ensure that there is no need in future for four processing sites. Clearly, however, the capacity is not there yet and Newry will not be closed until capacity in the other centres has been increased.
	I welcome the hon. Gentleman's response to Government amendment No. 2, which changes the procedure for this House in considering Treasury orders relating to joint and several liability provisions for VAT. In future, both types of order will be subject to the affirmative procedure.
	Let me turn now to the new clause and concerns about registration and repayments. I understand the concerns and I recognise that problems have been caused to some legitimate businesses, but I think that hon. Members on both sides of the House have also recognised the necessity of the action that HMRC has to take to try to counter what is a very serious and systematic form of fraud. We already have a good deal of scrutiny of HMRC's performance in these fields, and there are also well-established arrangements for judicial challenge, should that be required. I hope that the hon. Gentleman will accept that his new clause is not necessary and may risk causing complications and further problems.
	There must be agreement across the House that, as well as delivering the highest possible quality of service for compliant and legitimate businesses, it is important for HMRC to guard against the threats of fraud and attack. The House is well aware of the scale of that threat; its impact on VAT receipts was estimated at between £2 billion and £3 billion in 2005-06. The House is also well aware of the range of measures that the Government have taken to stem those losses. I am confident that the combination of those measures, together with the work of HMRC officers in tackling the fraudsters, is beginning to have a significant impact on the scale of MTIC fraud losses.
	In 2006-07, 7,100 applications for registration were refused on the grounds that they were suspect, and 2,500 applications were registered with specific conditions such as financial security. It remains the case, however, that the two key components of HMRC's MTIC strategy must be, first, to prevent bogus businesses from obtaining a VAT registration, because without that it is not possible to operate that form of fraud, and, secondly, to verify that VAT repayment claims suspected of arising from the supply chains affected by that type of fraud are properly checked and verified.
	VAT-registered businesses submit about 2 million applications for repayment every year, which is worth between £50 billion and £55 billion. The House will accept that it is only right that those returns are subject to certain credibility checks before payment is made. Just 10 per cent. of all repayment returns fail those credibility checks and are therefore selected for further checking—in other words, nine out of 10 returns are not selected for further checking. A tiny fraction of those claims is suspected to be linked to MTIC fraud and is therefore subject to a highly targeted process of extended or in-depth verification.
	The verification of suspect repayments that maybe connected to MTIC fraud can be complex and time-consuming, not least because such organisations deliberately make it time-consuming to check their complex supply chains. I am glad that Opposition Members accept that only 1 per cent. by value of the VAT withheld under that programme has been found to be correctly claimed and properly payable. In 19 out of 20 cases in which traders have been subject to extended verification, HMRC has found either evidence that traders have participated in or profited from trading linked to MTIC fraud or sufficient grounds for suspicion that further investigation is required to determine the veracity of the claim.
	As VAT registration is clearly the entry point to MTIC and other types of serious VAT fraud, it is right that we take stringent action to deny fraudsters the opportunity, where we can. That includes rigorous pre-registration checks, which can cause delay. However, the picture behind the performance of HMRC on VAT registration is rather more complex than that. Historically, the delays in registration have been largely due to incorrect or incomplete applications, and the introduction of a new form in December last year made registrations easier to complete accurately—the number of people who get their applications right first time has increased from 30 per cent. to around 70 per cent. The assessment procedures around registration have become more targeted, and they have also become more flexible as we have detected changing risks. Nineteen out of 20—95 per cent.—of applications are now cleared for registration after an initial check, and for those applicants the average time to process an application is currently38 days. I acknowledge, however, that there are also some unacceptable delays in the registration service at the moment.
	The hon. Member for South-West Hertfordshire cited Mr. Paul Gray, the HMRC chairman, and Mr. Mike Eland conceding that point before the Treasury Committee and asked what steps HMRC is taking to tackle those delays. First, a taskforce has been set up within HMRC further to concentrate on the highest risk applications to minimise the disruption caused to other legitimate applications. Secondly, the maximum resource possible has been committed to introducing the medium-term changes to concentrate registration staff and expertise in two sites rather than four. Thirdly, there has been a concentration on making the necessary improvements to the computer system. I recognise that it may take some time to get those measures precisely right. HMRC has told me that it is confident that by the autumn it will be on track to deliver a sustained improvement in the registration service that serves taxpayers' needs while remaining tough and strong on fraud. On top of the undoubted pressure with which HMRC is dealing, Opposition Members have proposed a new obligation, which could cause further problems.
	There is an established series of regularly and properly used procedures in this House for holding HMRC to account and for HMRC to report to this House, and there are a number of judicial safeguards and methods of redress for companies that may require them. In the end, HMRC is, of course, subject to judicial review for its actions, and it is noteworthy that the courts have consistently supported HMRC's verification approach, including checks made in the past 12 months. To date, all cases reaching a full hearing in the courts have been dismissed.
	I submit that HMRC has recognised the dropin the proper and rightfully expected performance on registrations and that steps are being taken to rectify the situation. The fact that that is a temporary dip in performance levels and that the Government will implement public service agreements to ensure thatthe situation is effectively monitored and scrutinisedin the future mean that new clause 4, which would give the Treasury the power to propose statutory time limits for processing VAT registration and repayment applications, would be counter-productive. In the context of a VAT registration service that is currently under pressure and that is dealing with temporary problems, new clause 4 is a disproportionate overreaction. As the hon. Member for Falmouth and Camborne (Julia Goldsworthy) has rightly pointed out, it might have the perverse effect of tying up HMRC in unnecessary bureaucracy and litigation at a time when all of us want it operationally to sort out the problems and delays on registration and to maintain the pressure on VAT fraudsters.
	I hope that I have been able to give the hon. Member for South-West Hertfordshire and the House the reassurances that they have been looking for. I therefore hope that the hon. Gentleman will not consider it necessary to press new clause 4 and that the House will welcome Government amendment No. 2.

David Gauke: I agree with the Financial Secretary that we have had a good debate this afternoon. My hon. Friends the Members for Ludlow (Mr. Dunne) and for Braintree (Mr. Newmark) and my right hon. Friendthe Member for Wokingham (Mr. Redwood) have highlighted some of the issues for business causedby the delays in VAT registrations and repayments. Indeed, the hon. Member for Falmouth and Camborne (Julia Goldsworthy) supported the objectives of new clause 4.
	I am grateful to the Financial Secretary for clearly acknowledging the difficulties. He has referred to95 per cent. of VAT registration cases being determined within 38 days, which is somewhat above the 21-day HMRC target. He has been clear that problems are evident, and he has recognised the difficulties for businesses and that some of the delays are "unacceptable".
	The Financial Secretary adopted a slightly different tone than has sometimes been the case for Ministers. On 24 January in evidence to the Treasury Committee, the Paymaster General did not seem to recognise the difficulties. None the less, I appreciate the tone adopted by the hon. Gentleman. He has been clear that he sees this as a temporary dip. Obviously we will watch the situation closely to see whether the steps that he outlined that HMRC is taking to address this succeed in meeting those objectives. If next year improvements have not been achieved, we will look at the matter again. However, I beg to ask leave to withdraw the motion.
	 Motion and clause, by leave, withdrawn.

Danny Alexander: I beg to move, That the clause by read a Second time.
	The new clause would reduce the burden of high fuel costs on residents in remote rural areas, such as those in the highlands and islands, including in parts of my constituency and those of other hon. Members. Some hon. Members here were present for a similar debate this time last year, and I welcome the opportunity to return to the subject. I recall that Labour Members chose to vote against the new clause on that occasion, and Conservative Members by and large abstained. I hope to have a little more support this time, although I note—perhaps this is an augury for the future—that the Chancellor of the Exchequer did not vote last time, so perhaps this is an issue on which he wishes to move forward when he becomes Prime Minister in a few days' time. However, as my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) says from a sedentary position, his track record may suggest that his heart does not warm to this issue.
	In bringing forward the new clause, I have tried to address some of the criticisms that were made whenthe matter was last debated and I have come up witha modest proposal, but one that will make a real difference and help to remedy a real disadvantage. This is a matter that I raised, in writing, with the Chancellor before the last Budget, and I am grateful for the reply that I received from the Financial Secretary, although it was not particularly positive in terms of moving the issue forward.

Danny Alexander: The right hon. Gentleman raises an important question about the definitions, to which I will come, but I should like to outline my argument first and then address his point.
	The justification for the new clause is that in those remote areas where a car is most necessary, where public transport is lacking and long distances are the norm, fuel prices are far higher than they are elsewhere. As of yesterday, the average price for a litre of unleaded petrol in the UK was 96.9p. In Aviemore, in my constituency, it was 99.9p. In Stromness, in the constituency of my hon. Friend the Member for Orkney and Shetland (Mr. Carmichael), it was 102.9p. In Lerwick, in Shetland, it was 105.4p, a difference of 10p compared with the UK average. In Dalwhinnie,in my constituency, the average price was 10l.1p. In Thurso, the average was 102.3p, showing a range of differences in the sorts of areas that might well be caught within the scope of the new clause, of between 3p and 10p a litre.

James Duddridge: The hon. Gentleman repeatedly refers to the highlands and to Scottish constituencies. Would any English or Welsh constituencies be affected, particularly given his definition of remote rural areas? Was the 3 per cent. figure put in place to includeand exclude certain constituencies, and why not 2 or4 per cent?

Danny Alexander: I did indeed notice that. I hope that the scheme that I am proposing would benefit not only the people who live in remote rural areas but the filling stations located in those areas, which provide a vital service to their communities.
	The scope of the duty rebate would be limited under European law by the energy products directive. Briefings from the House of Commons Library have made it clear that the directive limits the scope of any rebate to 3.54 euro cents per litre. I use the euro cents definition for the benefit of the right hon. Member for Wokingham (Mr. Redwood) and others. At today's exchange rate, that would equate to 2.4p per litre of unleaded petrol. The proposal would not, therefore, go the whole way towards closing the gap that I have described. Indeed, I might choose on another occasion to argue that the amount allowable for the rebate should be greater, because of the differences inprices that I have described, particularly in island communities. However, that argument should be left until the principle behind the measure that I am proposing has been established. I hope that the House will show its support for that principle by supporting new clause 8.
	The scheme would be available to people who live in remote rural areas when they purchase fuel in filling stations located in those areas, thereby protecting those valuable services. There would be a need for the scheme to be administered, perhaps using a simple swipecard system. Hon. Members representing Scottish constituencies will know about the Scottish Executive's air discount scheme, which entitles people living in island communities to discounts on their air faresas they travel back and forth from their homes. It is possible to administer schemes of this nature in a simple, cost-effective way, but administration would none the less be needed, not least to protect against the potential for fraud and leakage that Treasury Ministers were concerned about last year. For the same reason, it would be linked both to the individual and to their registered vehicle. I do not believe that there would be leakage or fraud, but having a simple registration scheme for the individual person and their vehicle would address the concerns previously expressed by Ministers.

Danny Alexander: I think that this scheme would be a great deal easier to administer than the congestion charge, not least because the eligible registrants would be receiving a benefit rather than paying a cost. That would result in a great deal more enthusiasm for the registration process, which could be made very simple. I gave the example earlier of the air discount scheme, which has a very simple registration process. Adopting something along those lines would ensure that the procedure was neither complicated nor bureaucratic.
	I have also, quite fairly, been asked what exactly constitutes a remote rural area. The 3 per cent. figure has been referred to, and the new clause makes it clear that such an area would be defined by regulation. However, I should like to make some suggestions on that point. There are different definitions of remote rural areas in Scotland, compared with England, Wales and Northern Ireland. I would suggest that, in Scotland, areas classified as remote small towns, very remote small towns, remote rural areas and very remote rural areas under the Scottish Executive's urban and rural classification scheme—with which I know Members will be familiar—should be included. In England and Wales, sparse rural small towns, villages and dispersed areas—as defined by the Countryside Agency's rural and urban area classification scheme of 2004—seem broadly similar to the Scottish definitions that I have described.
	On the basis of those definitions, I estimate that2.71 per cent. of the UK population would be entitled to claim the proposed discount. I do not have an estimate of the number of filling stations in those areas; that information is not available. The 3 per cent. limit would allow for some variability in the definitions if, for example, it became necessary to ensure that there was absolute consistency between the arrangements in Scotland, England, Wales and Northern Ireland. Those definitions are clearly understood by the agencies that promulgated them, and they are already used by the Government for other purposes.
	My assumptions on costs may be challenged but, working on the basis of a discount of 2.4p or 3.54 euro cents for that percentage of the population, if everyone spent all the money that they spend on fuel in rural filling stations and consumed fuel on an equal basis, I estimate that the cost would be about £32 million.

Stewart Hosie: The hon. Gentleman has just mentioned people spending money in rural filling stations. The new clause states:
	"The purpose of the Scheme is to provide a rebate on road fuel duty to qualifying persons at qualifying retail outlets."
	Is it not possible that someone might qualify but choose to buy their petrol in an area that is not considered remote, because that was a sensible thingto do? How would the scheme work in those circumstances?

Danny Alexander: The hon. Gentleman makes an important point. The purpose of the scheme is to level the playing field. In my constituency, for example, the city of Inverness would not qualify for the discount under the scheme because petrol prices there are pretty near to the UK average. We are not seeking to implement the scheme in such a way that it would lead to a cut in prices there. Similarly, if the hon. Gentleman drove to London and bought petrol here, that would not qualify. In the case of Inverness, I shall concentrate on persuading Tesco to cut the price of its fuel to the same level that it charges at its store in Elgin, where it has competition from Asda. It has no such competition in Inverness. That would ensure an additional benefit.
	The scheme would bring significant benefits to rural areas and address an obvious injustice. In the longer term, a scheme involving road user pricing wouldbring the combination of benefits and environmental advantages to remote rural areas that the Liberal Democrats are seeking to achieve. In the meantime, however, given that a car is a necessity in those areas, and the amount of car use will not be reduced or increased, it would be wrong to reject the new clause on an environmental basis. We have other ways to promote the use of fuel-efficient vehicles, for example through vehicle excise duty incentives. The scheme is designed to reduce the additional cost burden on people living in the communities that I have described, and I commend it to the House.

Paul Goodman: I am sure that the hon. Gentleman is correct, and I think that he made that point in the same debate last year.
	Last year the hon. Member for Inverness, Nairn, Badenoch and Strathspey attempted to alleviate such problems by proposing lower rates of fuel duty in remote areas. The Liberals also tabled an amendment to raise band G vehicle excise duty rates in general, but in some areas to cut all bands, for what were then old cars—including band G cars, which are the most polluting—and in other areas to cut all bands except band G, for what were then new cars. As Members who were present for last year's debate will recall, those amendments did not stand up to examination in every detail. In effect, that was acknowledged by the hon. Gentleman when he proposed the new scheme. It is perhaps significant that the Liberals have not retabled the VED cut proposal at all this year; they did retable the lower fuel duty rate proposal, but in Committee, not on Report. It was significant that the hon. Member for Falmouth and Camborne (Julia Goldsworthy) said in Committee that she was doing that "to highlight a principle", which suggested to me that she did not have any great confidence in its practicality.
	The hon. Member for Inverness, Nairn, Badenoch and Strathspey has proposed, essentially, a coupon scheme, but he described it as a kind of swipe-card scheme. Under the scheme, people who live in remote rural areas and drive eligible vehicles would be entitled to cash in their coupons or swipe their cards at qualified retail outlets for a rebate. That raises several questions.
	To return to last year's debate: is there an accepted definition of a remote rural area? The hon. Member for Dundee, East (Stewart Hosie) famously pointed out last year—in Committee, I think—that there are several definitions. Certainly, were the proposal to be progressed, the 3 per cent. figure would have to be considered closely. Once that problem is settled—I shall assume that it is capable of being settled—there is the question of whom should qualify, which the new clause as drafted does not make clear. Is it right, for example, that a multimillionaire with a second home in a remote rural area should be able to get a discount, whereas a widow dependent on benefits in an urban area should not? Once that is settled, there is the question ofwhat vehicles should qualify. If band G vehicles, for example, are not to qualify—on paper, there is a case for them not qualifying—will our multimillionaire driving a band F vehicle get a discount, while, say, a farmer on a lower income driving a band G vehicle does not?

Danny Alexander: The hon. Gentleman makes an interesting point. However, in answer to the right hon. Member for Wokingham (Mr. Redwood), who is no longer in his place, I suggested that a requirement that the remote rural area be the individual's primary residence for tax purposes would, except in the caseof the small number of multimillionaires who live permanently in such areas, deal with that.

Paul Goodman: I am tempted to reply that when we get a workable solution, rather than three unworkable proposals, we will respond with our own; my answer, however, is that I will come to that precise point in a moment, and explain why we might have been able to support the new clause had it been formed in a slightly different way.
	A Bill is amendable, but regulations are not. Under the new clause, before the next Finance Bill completes its passage—we must presume that it will not have done so by 1 May—Ministers would introduce the scheme by unamendable regulation. That cannot possibly right. Were it right to propose such a scheme, surely Members would want to be able to amend the proposal. However, we have not had any proposal that is capable of being amended, only a vague outline proposal.
	We would have been pretty sceptical had the Liberals tabled an amendment calling for a report on the swipe-card scheme, but we would have said that the Treasury should publish an assessment. I am not sure why the hon. Member for Inverness, Nairn, Badenoch and Strathspey did not table an amendment calling for a report, because plenty of amendments do. Perhaps he felt that there were already a lot of those. Whatever his reason, he has essentially proposed an outline scheme, which the Minister would be required to rush through before the next Finance Bill is complete and which the House could not amend. On that basis, no one should support it in the Lobby.

Julia Goldsworthy: The hon. Member for Wycombe (Mr. Goodman) finished slightly more abruptly than I expected him to, Mr. Deputy Speaker.
	I welcome the opportunity to discuss the proposal further, not least because it has been interesting tohave a little more light cast on the absence of any constructive proposals from the Conservatives. The hon. Gentleman said that the problem could have been resolved had the new clause been phrased slightly differently, but we see no alternative.

Julia Goldsworthy: I am sure that you would callme out of order, Mr. Deputy Speaker, if I suddenly disappeared down a side alley to discuss the vehicle excise duty when we are talking about a fuel duty rebate. It might be worth pointing out in passing, however, that proposals similar to those made by the Liberal Democrats have been accepted to increase vehicle excise duty. The principles, therefore, have been adopted.

Julia Goldsworthy: I am afraid that my hon. Friend has drawn a rather depressing, although wholly accurate, conclusion.
	In the Committee of the whole House, thehon. Member for Wolverhampton, South-West (Rob Marris) commented on the need to have carrots and sticks for environmental measures to try to change behaviour. We discussed those issues, including this one, at great length. I am pleased that my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) has developed the argument further since we had the opportunity to raise it in Committee a few weeks ago.
	In terms of the carrot and the stick, my hon. Friend was trying to make the point that in areas of his constituency—and, for that matter, in areas in my neighbouring constituencies, although I suspect not in mine because it is urban—where there is no alternative to the car, the increase in fuel duty proposed by the Chancellor in the Budget, a measure that the Liberal Democrats welcomed, will not have an impact on people's behaviour because it is impossible for them to change it, as there is no alternative. On that basis, it is sensible for the Government to consider seriously the idea of taking up the derogation from article 19 of the EU energy products directive, as other countries have done, and recognising the difficulties that people in rural areas face.
	As my hon. Friend said, those people are facing a triple whammy. They have lower wages than average and no access to public transport, and they pay higher fuel prices at the pump. His solution is not that they should have cheaper fuel, but that they should pay a price comparable with that paid by others. It is important not to underestimate the effect that that triple whammy has not just on those individuals, but on the local economy. If people have to drive elsewhere to get fuel for their car, the chances are that they will spend their money in other places as well. It will undermine their local community and leave people who do not have access to a car with less access to other resources, because—

Julia Goldsworthy: I am sorry, Mr. Deputy Speaker.
	We have a practical remedy. One reason why we have the differential in fuel prices is market failure. Price are higher not just because the cost of transporting the fuel is higher, but because there is no competition. It has been argued that the proposal could be abused, but if people have to drive a 25-mile round trip simply to get to their nearest petrol pump, the idea of their doing a 100-mile round trip to get 1p off a litre of fuel is highly unlikely.
	We would have welcomed amendments from the Conservatives.

Julia Goldsworthy: Had the hon. Gentleman beenin the Chamber when my hon. Friend laid out his argument, perhaps he would have understood that such individuals would not qualify for the scheme set out in the new clause.

Julia Goldsworthy: My hon. Friend's comments are self-explanatory.
	Listening to the debate, and thinking about the impact that higher fuel prices are having in many rural constituencies, draws my mind back to comments made by the current Chancellor—the Prime Minister of the very near future—on the need for child poverty tobe recognised and for action to be taken across Departments to tackle it. Fuel poverty is recognised more widely, and the Government have acted to address that problem. We have raised the specific example of people on low incomes who spend a relatively high proportion of their income on fuel to get around, and to get to their jobs. I am interested to hear how the Treasury thinks that not having proposals to tackle that problem is having an impact on fuel poverty. When the new Prime Minister is in his place, perhaps the Government will need to think again about taking action if they are to hit their poverty targets.

Stewart Hosie: I have some sympathy with the new clause, not least because I tabled similar amendments in the past few years, in particular in what was new clause 6 on the Floor of the House on 28 June last year. Proposed new subsection (1AB)(b) of that new clause provided for
	"specific fuel duty reductions targeted at fuel sold in sparsely populated areas".
	I hope that the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) recognises that, as the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) did not in last year's debate.
	The hon. Member for Inverness, Nairn, Badenoch and Strathspey has at least sought to answer someof the legitimate questions posed about similar amendments over the past few years. He has, however, left other questions unanswered, and I shall touch on those in turn. Subsection (2) of new clause 8 says:
	"The purpose of the Scheme is to provide a rebate on road fuel duty to qualifying persons at qualifying retail outlets."
	At that point, the hon. Gentleman should have mentioned qualifying vehicles.
	The hon. Gentleman has tried to use regulations to define remote rural areas. In a sensible attempt to bypass the definitions already in place—which, off the top of my head, I think may cover 95 per cent. of the land mass or 30 per cent. of the people—he has limited the definition to the land mass that contains no more than 3 per cent. of the population. It may be arbitrary and need to be defined a little more, but that approach is sensible.
	The hon. Gentleman said that regulations would provide for a system of eligible vehicles. A great deal more work is required to be done on that, especially if we are not simply taking account of the cost of living issues in remote rural and sparsely populated areas, but considering economic development in those areas as well, particularly in relation to a very short seasonal tourist trade. I am not making a special pitch for that tonight, but work should be done on that issue in conjunction with the rest of this area.
	The hon. Gentleman did not define the primary residence qualification, which would have been useful in defining who and what was eligible, but work could be done on that. He did say that the regulation would look at how administrative costs would be defrayed. The difficulty is that that would cover only the administrative costs of a system that might be cumbersome and slightly bureaucratic—although it would not necessarily be so. There is no attempt to specify how the real cost of the reduction might be funded, as we did previously with the VAT offset.
	Having said all that, I would not normally support an amendment with so many weaknesses, but the hon. Gentleman said that he would seek a derogation and he hoped that the principle of what he was proposing—that the high costs faced by those living in sparsely populated areas should be defrayed—would be accepted. With that heavy caveat on the record, we would be prepared to support the new clause, should he push it to a vote.
	More importantly, the hon. Member for Wycombe (Mr. Goodman) said that he believed that some ofthe issues were resolvable. In previous debates, the Financial Secretary has expressed some sympathy for people who live in remote and rural areas and suffer from what are, in some cases, 10, 15 and 20 per cent. increases in the cost of a litre of fuel compared with the average price in the nearest modest county town or city. With the good will that exists, and the persistence shown by many hon. Members on this issue, I hope that a solution to the problem might be found for a subsequent Budget or Finance Bill. I look forward to hearing what the Financial Secretary has to say on this .

John Thurso: I rise to support my hon. Friendthe Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) and to congratulate him on having taken on board the criticisms that have been made in the past and coming up with a workable and sensible scheme. If I had a criticism of it, it would be that it shows too much restraint and not enough generosity, but I would rather have some crumbs than none at all, so I am happy to support him. If there is an element of "Groundhog Day" about this debate, I make no apology for entering the fray again. As a great Scottish king once said, if at first you do not succeed, try, try and try again. My hon. Friend is certainly doing his best.
	The issue is simple. As I drove down the A9 this morning, in Brora, petrol was 102.9p a litre, so it is at a premium compared with the figures that my hon. Friend gave for Inverness, Edinburgh and London. That is a regular occurrence. Over the years that I have spoken about this issue, I have looked at the premium on many occasions and it ranges from a minimum of 6p up to a maximum in my constituency of 12p. The reason is straightforward—it has been investigated repeatedly by the relevant competition authorities—and it is because there are too few vehicles crossingthe forecourt to provide sufficient cash income to cover the fixed costs of running that forecourt. Therefore, the extra price is necessary. My hon. Friend spoke of the triple whammy, and I will not labour that point, but I will point out some of the facts about the location of petrol stations.
	If one is at the western end of the north coast at Durness and one drives for an hour or so to Tongue, which is about halfway across, there are no petrol stations in between. It is some 50 miles, but much of the road is single track and it is mostly empty and straight, so one drives at an average 50 to 55 mph. Between Tongue and Thurso there are two petrol stations, one in Caithness, near Thurso, and one that is about halfway. If one goes south from Durness to Kinlochbervie, which is the best part of two hours to drive, there is one filling station on the main road at Scourie. The residents of those areas therefore have to drive up to 20 miles and back just to fill up. Part of the problem is that rural filling stations have closed because they have been unable to keep going for the commercial reasons that I have mentioned.
	We all accept that in the 21st century transport in such areas is not a luxury but a necessity. If one wishes to access a hospital from the north of Sutherland, one has a 200-mile plus round trip, with no public transport that can get one there. The NHS Highlands is good about providing taxis for those who cannot access private cars, but the vast bulk of people have to use a private car. Many services that people throughout the country take for granted as readily accessible are, as a matter of course in the far north, a 20, 30, 40 or 50 mile journey.
	My hon. Friend's scheme of a 2.4p rebate, based on the tight criteria he has drawn and using the experience of the Scottish Executive's air discount scheme, which applies to Caithness and most of Sutherland as well as the islands, is a good one. He has given the figures for the cost to the Exchequer, but he has worked them out on the basis that 100 per cent. of those eligible will take up the scheme. As we know from questions asked in the Treasury Committee, the take-up rates of almost every benefit offered are 50 per cent. or lower. It is therefore highly unlikely that that cost would be the effective cost. I have one small suggestion that might help, which is to devolve the issue to the Scottish Government and let them pay for it out of the block grant. That would remove the cost from the Treasury entirely and please the hon. Member for Dundee, East (Stewart Hosie).
	The burden carried by my constituents is very real and I have sought to bring it before the House on several occasions, as have my hon. Friends who represent similar constituencies. It is a genuinely practical scheme, which would allow Ministers to put something in place that would alleviate that burden without giving any advantage. I was heartened to hear the hon. Member for Wycombe (Mr. Goodman), speaking for the Unionists, talk about his agreement with the principle, which is a great step forward from last year. I only hope that the occupants of the Treasury Bench will have undergone a Damascene conversion from their somewhat uncaring attitude and that we may look forward to some encouragement at least from the Financial Secretary.

Alan Reid: We all know that fuel that is sold in remote areas is sold at a much higher price than in urban areas. The purpose of new clause 8 is to achieve a level playing field to work against the triple whammy of higher fuel prices, no public transport alternatives and the need to drive longer distances. I shall give some examples from my constituency that will show how large the differentials can be. On the large islands of Mull and Islay, a litre of unleaded is usually some 15p to 20p more than in Glasgow. On the smaller islands, the differential is much greater. On Coll and Colonsay, it is usually some 30p a litre extra.
	The additional cost works its way through the whole economy. We all know that the price of fuel adds to the price of all other goods. High fuel prices make it more difficult to run and sustain a business in those remote areas. The remote communities in the highlands and islands have suffered years of population decline,which unfortunately shows no sign of stopping. High fuel prices are clearly part of the problem, as they discourage people from starting up the businesses that would create the jobs that would allow young peopleto stay.
	The environmental justification for high fuel taxes is that they can be used to encourage people to change behaviour, but that does not apply in remote rural areas with no public transport alternative. It would make no sense for councils in such areas to subsidise bus services, because most of the time the buses would run empty, or with only one or two passengers. There isno alternative to car travel in such areas, and no environmental argument in favour of higher fuel taxes there.
	Cutting the price of fuel by a few pence a litre would not encourage more people to drive more. People do not drive dozens of miles along twisting, single-track roads just because they enjoy it; they make such journeys because they have to. The car is not a luxury; it is an essential.

Alistair Carmichael: I have explored this very question with one of the local filling station owners in a village near my own in Orkney. He has told me that when the price of petrol falls, as it does from time to time in response to reductions in the wholesale price, he sees absolutely no change in demand. Does my hon. Friend agree that we may be able to use that evidence tooffer some reassurance to the hon. Member for Wolverhampton, South-West (Rob Marris)?

Alan Reid: I thank my hon. Friend. His intervention is very helpful to the argument and demonstrates the point that I am making.
	New clause 8 would help reduce the burden on people living in remote rural areas. It restricts the definition of such areas so that the combined total of qualifying areas would not cover more than 3 per cent. of the UK's total population. Therefore, its cost tothe Treasury would be very small. The maximum differentiation of duties allowed under the EU energy products directive is 3.54 eurocents per litre for unleaded petrol. At current exchange rates, that amounts to 2.4p a litre, or roughly 5 per cent. of the duty. For diesel fuel, the maximum differentiation is 2.3 eurocents, or 1.56p.
	I would like the Government to negotiate in Europe for a higher differential, but 2.4p is the maximum currently allowed. As my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) explained, reducing fuel duty by that amount for dwellers in remote rural area would cost the Treasury about £32 million a year. I think that the Treasury can well afford that sum, and the new clause would mean that extra money would be available for people in remote rural areas. If it were spent in those areas, it would go a long way towards regenerating the rural economy.
	I and my hon. Friends raise this matter every year, because it is a severe problem in our constituencies. The members of the Conservative Front-Bench team have accepted that a problem exists, but they do not appear to have a solution. I hope that the Government will accept today that there is a problem and, even if they feel that they cannot accept this new clause, come up with a solution of their own. In terms of fairness and social justice, such a solution would be of great benefit to rural areas.

Alistair Carmichael: I am intrigued by the way that the Financial Secretary compared the cost of fuel in rural areas with the cost of housing in urban areas. Is there a hint, underlying that thesis, that the Chancellor of the Exchequer, who represents Kirkcaldy and Cowdenbeath, was wrong yesterday to suggest that there should bean increase in the availability of social housing inurban areas?

John Healey: I shall move on.
	It is important to be clear about what would not be guaranteed under the proposals and about their practical impact. Trying to implement such proposals would involve complex and expensive changes to the tax system. The hon. Member for Inverness, Nairn, Badenoch and Strathspey knows that the duty point for hydrocarbon oils is either when the oil is imported into the UK or when it leaves a refinery. At present there is no mechanism—as would be required under his proposals—to account for duty where the fuel is used. Moving the point at which the duty becomes payable down the consumer chain would mean that instead of hundreds of companies being liable to pay fuel duty, thousands would have to pay it. Such an exercise would self-evidently be complex, expensive and burdensome.
	This is the Report of the Finance Bill, so this is the Liberal proposal to benefit motorists, but I am afraid that this is me from the Treasury Bench saying that the case has not been made in principle or in practice. If the hon. Gentleman wants to push the new clause to a vote, I urge my hon. Friends to resist it.

Danny Alexander: I am grateful for the contributions that have been made in the debate. We have heard some positive remarks from the Liberal Democrat Benches and a grudgingly positive remark from the hon. Member for Dundee, East (Stewart Hosie).
	The hon. Gentleman referred to the costs of the proposal. My estimate of £32 million is not a spending commitment, because we would seek to ensure that those funds were provided through the rest of the fuel duty system, which would result in only a minuscule change overall in a system that currently yields£23 billion. Only a tiny adjustment would be necessary to make the rebate financially possible.
	The contribution of the hon. Member for Wycombe (Mr. Goodman) was astonishing. He expressed sympathy for the plight of rural people, but did not propose to lift a finger to do anything about it.

Alistair Carmichael: Does my hon. Friend agree thatthe true magnificence of the Conservatives' position becomes apparent when one considers their view about a national road user pricing scheme, which in the long term is the obvious way to reduce the costs of motoring in remote and rural areas? The Conservatives are not even promising us jam tomorrow.

Paul Goodman: Will the hon. Gentleman state forthe record that he would be happy for the Financial Secretary to come to the House next year with a scheme whose regulations the hon. Gentleman and his colleagues will not have an opportunity to amend?

Mark Hoban: I beg to move, That the clause be read a Second time.
	Judging from the number of Members present, this is going to be quite a short debate, but I hope that it will achieve something. I hope that we will movethe debate on so that we are all able to take a view about private equity based on the facts, rather than supposition.
	By way of background to the debate, it is worth highlighting some of the benefits of private equity to the economy as a whole. Companies backed by private equity firms have increased their work force by an average of 9 per cent. each year for the past five years, whereas FTSE 100 companies increased their work force by an average of only 1 per cent. a year over the same period. Companies backed by private equity firms have increased their sales by 9 per cent. per year—almost double the average for FTSE mid-cap companies. The private equity industry has invested more than £60 billion in 24,000 UK companies over the course of the past 20 years. So, the record is impressive. The value that is created is one of the reasons why many pension funds choose to invest in private equity funds. The returns that they offer help millions of people across the country to receive a decent income in retirement.
	It is important that we put the current debate in that context. Over the course of the past few months that debate has been in two stages. In the earlier part of the year, there were concerns about the transparency of private equity—

Mark Hoban: Indeed, Madam Deputy Speaker. I thought that it was important, for the sake of those taking an interest in the debate, to set the context in terms of some of the remarks that have been made in recent weeks. Against that clear background, there have been a number of calls from different sources for reviews of private equity and the way in which some of the tax structures work.
	Let me quote one example. I hope that the new Prime Minister—as of Wednesday afternoon—has read the remarks about private equity made by the new deputy leader of the Labour party, the right hon.and learned Member for Camberwell and Peckham (Ms Harman). I am sure that she is looking forward to working closely with him. She said—

Mark Hoban: Indeed, Madam Deputy Speaker. The right hon. and learned Member for Camberwell and Peckham called for action on taxation, which is the point that I am coming to. Several people have called for action on taxation over the past few weeks. Indeed, members of the Treasury Committee have made that a feature of their inquiry on private equity.
	New clause 11 would give the Treasury the opportunity to produce information to help to bring clarity to the debate on private equity. It is important to know the Treasury's estimate of the cost of the tax relief granted to private equity companies and venture capital funds through the application of taper relief on carried interest. The matter is not straightforward, which is why we have asked the European School of Management to examine carefully not only the broad question of private equity, but some of the tax issues. We realise that taper relief is an incentive for peopleto make long-term investment decisions and to be rewarded for the risk that they have taken.
	The treatment of carried interest stems from a memorandum of understanding between the British Private Equity and Venture Capital Association and the Government. The MOU is referred to in the first part of the new clause. That treatment is applied to the carried interest, which is described in the MOU as
	"an interest in a partnership which provides that the holder is entitled to participate in the super profit made by the fund".
	Super-profit occurs when the return from a fund exceeds various thresholds. In effect, the MOU disapplies income tax rules under the Income Tax (Earnings and Pensions) Act 2003 that usually apply to securities that are acquired as part of employment.
	We have a problem understanding the amounts involved. For example, during last week's Prime Minister's questions, the right hon. and learned Member for North-East Fife (Sir Menzies Campbell) said
	"we are giving a tax break of £6 billion per annum to some of the wealthiest people in the United Kingdom."—[ Official Report,20 June 2007; Vol. 461, c. 1372.]
	I was not quite sure what he meant by that. While the Red Book gives that figure as the value of taper relief, that relief applies to a wide range of transactions and people. Last week, the managing director of Gala Bingo highlighted the fact that all his employees who invest in shares in the business benefit from that taper relief. As part of the debate on private equity, it is important that we get information about the value of tax relief, which would be the purpose of the first part of new clause 11.
	I would be keen for the Treasury to publish how much it has raised through private equity in capital gains tax in each year since 1997 and the impact that the MOU has had on the amount taken. Given that the Treasury is conducting a review on carried interest, I assume that it has such information at its fingertips. It would be beneficial to the entire debate on private equity if that information was published so that people could gain an understanding of the true extent of the problem. It would also be helpful if there was a way of analysing from the Government's figures the time that the carried interest had been held to determine whether private equity investors hold for the long term. At the moment, the taper relief kicks in after two years. The period for which private equity holders are holding carried interest beyond that cut-off point is a matter of contention. Will the Economic Secretary share with us the terms of reference of the Treasury's review of the matter?
	The other aspect of tax relief that has recently caused concern, which has been cited by the Transport and General Workers Union in the context of the acquisition of Boots by Kohlberg Kravis Roberts, is the fact that interest paid on money used to fund an acquisition is subject to tax relief, as is any money borrowed by companies. It is important that we know the extent to which private equity is using a relief that is available to all businesses that are owed money. Such information would bring clarity to the debate that is taking place not only in the House, but elsewhere. While the Red Book tells us the value of the taper relief, it does not give information about the general tax relief or the extent to which the private equity industry takes advantage of that. However, earlier this year, the Economic Secretary announced a Treasury review on the interest treatment of certain loans, so perhaps he will be able to share information with the House to inform the broader debate on that tax relief.
	As you indicated, Madam Deputy Speaker, this is a narrow debate. However, it is important that we have such information so that the wider debate, which has been characterised by generating more heat than light, can take place in the context of that information.

Vincent Cable: I support new clause 12, which seems helpful. It cannot be wrong to request information about a matter that is a little obscure and not especially transparent. I thus welcome the search for entitlement.
	The measure is brave, in a Sir Humphrey way, given that the Conservative shadow Chancellor gave a pretty robust defence of the tax privileges of private equity firms at their annual dinner. Some Conservative Members really know about the business. The hon. Member for Hammersmith and Fulham (Mr. Hands) wrote a toughly worded letter to the  Financial Times last week in which he defended the status quo. I do not know whether the purpose of the new clause is torow back from that. However, as I understand it, the starting point of the Conservative party is that it wishes to defend the existing regime.
	On the other hand, there is some consensus that things are happening that need to be looked at again.I certainly interpreted the Economic Secretary's comments, when he spoke at the London School of Economics at the beginning at March, as showing a willingness to consider at least the second issue raised in the new clause—interest relief. I am sure that the Economic Secretary will not mind me quoting what he said—in fact, I am sure that he will say it again:
	"Today, I can announce that the Government will review the current rules that apply to the use of shareholder debt where it replaces the equity element in highly leveraged deals".
	That is half of the problem that is described in the new clause, and I am sure that we would all agree about that. The meat of the problem, and the area thatI think that we are debating, is the bit of the tax-privileged status of private equity that relates to taper relief.
	Of course, as the hon. Member for Fareham (Mr. Hoban) acknowledged, those concerned with private equity are merely one group of people who currently benefit from that relief, and I am inclined to ask, "Why pick on them?" After all, there are other groups who benefit from the relief in a similar way, and no more or less reputably. I read in the  Evening Standard today that Madonna has just bought her sixth £1 million-plus house. I do not know what her tax status is; if she is a British taxpayer, she will presumably be able to benefit from taper relief, if she holds that property as an investment for a period of years. It is not just those with private equity who benefit from taper relief.
	To understand the nature of the problem that the hon. Member for Fareham raised, we need to go back to Parliament's decision, in 1998, to introduce such an approach to capital gains tax. I think that I have the advantage of being the only person in the Chamber who took part in that debate; it was opened by the hon. Member for Coventry, North-West (Mr. Robinson), and the reply was given by the Conservative spokesman, the then Member for Arundel and South Downs, who left the House in unfortunate circumstances, and the right hon. Member for Wells (Mr. Heathcoat-Amory). As I remember it, I said pretty much the same as the Conservatives at the time, which was that we had a good system of capital gains tax, which was introduced by the noble Lord Lawson. It was simple and clear, and it applied the same ratefor capital gains tax and for income tax. It was straightforward, so why introduce complicated taper provisions that could eventually be taken advantage of by the group that we are discussing and others?
	Several arguments were advanced. The first was that if we create a differential, and if there is a 40 per cent. rate on one hand and a 10 per cent. rate on the other—that is roughly the magnitude of the difference between income tax and capital gains tax—of course people will look for ways of exploiting that, and that is exactly what the British Private Equity and Venture Capital Association sought to do in its memorandum. If it had not done it, other groups would have done it in a different way. Moreover, the Conservatives and my party argued that there was no justification for the suggestion that the measure would change business behaviour. Indeed, what was forecast by the Opposition parties is exactly what has happened. Groups of people have taken advantage of that very generous provision, which, as the hon. Member for Fareham says, has cost more than £6 billion, and there is not a great deal of evidence that it has changed business behaviour inany way that has contributed to national economic welfare.
	It is absolutely right that we look afresh at the relief, not simply in relation to private equity, but in relation to the whole, large-scale, far-reaching and extremely generous tax concession. In my view, we should go back to the regime that applied in 1997, which was perfectly satisfactory. That is the basis on which we have argued for getting rid of the whole taper relief arrangement, rather than simply singling out the part of it that applies to private equity. I suspect that I would go a great deal further in reforming the system than the Conservative Front-Benchers would, but none the less, their new clause, which I understand to be probing and a pursuit of information, seems entirely sensible and worth supporting.

Edward Balls: I am happy to respond to the debate on the new clause, and on proposals for a report to Parliament on the costs to the taxpayer of the tax treatment of carried interest and the deductibility of interest payable on loans. I am happy to respond in the spirit in which the hon. Member for Fareham (Mr. Hoban) spoke to his new clause. I think that he was seeking to probe our thinking on some tax issues in advance of the pre-Budget report, while trying to avoid being drawn into too wide a discussion on the merits or otherwise of private equity, and the views of deputy leadership candidates—or victors—on the subject. I am happy to respond in that spirit.
	The hon. Member for Twickenham (Dr. Cable) quoted from a speech that I gave in March, in which I set out in detail our views at the time on the private equity debate. Since then, there has been a great deal of further debate in the newspapers, and there looks setto be a very interesting report from the Treasury Committee, which held its evidence-gathering sessions in recent weeks. I will read just one quote from that speech, as it will set the context, and show that I accept and agree with many of the points that the hon. Member for Fareham made. I said:
	"Private equity, like any other form of ownership, has good and bad aspects—and it has features of both long-termismand short-termism. But the evidence does not suggest that Government has any intrinsic reason either to "favour" private equity or to do the opposite.
	Our aim should be to support economic dynamism and long-term investment and job creation. And the Government's objectives in the field of private equity should be no different from its objectives in relation to any other form of ownership: to promote an environment of long-term, sustainable business success, underpinned by a strong culture of clear disclosure to, and engagement with, underlying investors. This is the way to ensure that "good" long-term investment propositions prosper."
	Everything that we are doing in the field of private equity is in the context of that overall objective.
	The hon. Member for Fareham will not be surprised that I am not going to support his proposals for a further report. That is not because I am averse to reports but because rather a lot of reports on this issue are already on the table or being prepared. I have already referred to the forthcoming report by the Treasury. In my speech in March, I mentioned a report already provided by the Financial Services Authority into private equity's potential systemic implicationsfor the stability of financial markets. On disclosureand transparency, Sir David Walker is chairing an independent working party to develop a voluntary "comply or explain" code to improve private equity's transparency and levels of disclosure. The hon. Gentleman mentioned a review that I have promised for the pre-Budget report of the rules that apply to the use of shareholder debt where it replaces the equity element in highly leveraged deals. There is also the forthcoming report on improving the UK environment for enterprise and venture capital commissioned bythe shadow Chancellor from the European School of Management, which is to report by early autumn before the Treasury taxation reviews conclude.
	In other words, there are a rather a lot of reports coming up. Before the pre-Budget report and following the shadow Chancellor's review, we will want to take stock across the piece and respond properly to recommendations by the Treasury Committee, as we always have in other policy areas. I am not sure that another report is necessary.
	The hon. Member for Fareham tried to draw out some of our thinking on these tax issues. Both aspects of the new clause relate to the tax treatment of the private equity industry. As I have already said, the Government do not believe that one form of ownership should be inherently preferred over another. Rather, our aim should be to support economic dynamism and long-term investment and job creation. That is also the objective of our tax system. We do not believe that private equity should be favoured in a particular way, including in tax terms. Therefore, the capital gains tax treatment available for gains arising from carried interest and corporate tax deductions for interest—the two aspects mentioned in the new clause—is available to all taxpayers, not only to private equity investors in any preferential way compared with any other investor.
	Let me deal first with carried interest. The hon. Member for Fareham referred to a memorandum of understanding published in 2003. To set that properly in context, a previous memorandum of understanding had been produced in 1987 by the Inland Revenue and the British Private Equity and Venture Capital Association, which made it clear that carried interest would continue to be taxed to capital gains, not income. During the 2003 Finance Bill debate on this issue, which neither I nor the hon. Member for Fareham will remember—I am sure that my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) was not only there but commented on the explanatory notes—concern was expressed, particularly by the former Member for Arundel and South Downs, that changes being introduced to schedule 22, covering the whole range of employment-related securities, might have a negative impact on the capital gains tax treatment of venture capital.
	As a result of those debates, the memorandum of understanding that had been agreed in 1987 was re-examined and a new one, again agreed between the Revenue and the British Private Equity and Venture Capital Association was published. It provided guidance to the industry, but, importantly, did not affect the operation of the law in the Finance Act 2003.
	That memorandum of understanding confirms that returns received through carried interest should, in law, in the circumstances that it sets out—in plain vanilla form, which is a technical tax term that means "in a simple and straightforward way"—be taxed as capital gains. No concessions were made to the private equity industry at the time, but the memorandum of understanding clearly set out how the underlying legislation applied in the case of carried interest. It set that out in a way that would apply to any taxpayer who received such employment-related securities.

Edward Balls: Yes. There is no controversy about that. In those Finance Bill debates, concern was expressed that the schedule might have an adverse impact on the venture capital industry. Consequently, a memorandum of understanding was drawn up to give guidance to make it clear that, on the basis of the proper application of the law to all taxpayers and investors, including the private equity industry, some of the fears expressed would not be realised.
	Clearly, since then the salience of and media interest in such issues have increased. That applies especially to the way in which business asset taper relief is available to taxpayers who make gains on business assets. The hon. Member for Twickenham explained the genesis of the business taper relief and his principled position on opposing it. I could describe his position as almost Lawsonesque in its consistency—the former Chancellor of the Exchequer Nigel Lawson strongly believed that capital gains should be taxed at 40 per cent., not a lower rate. He believed that any lower rate between the top rate of income tax and capital gains tax would lead inevitably to avoidance. I understand the Lawsonian views that the hon. Member for Twickenham expressed. I take them at face value, not simply because he needs the £5 billion or so to pay for the tax cuts that he wants to promise others.
	We have always perceived the purpose of the business taper relief as an important means of encouraging investment and rewarding serial entrepreneurs, business angels and venture capitalists, who are prepared to take risks in growing companies. We probably agree with Conservative Members about that.
	There are no special rules for private equity fund managers and we do not collect information on the specific tax reliefs that private equity fund managers receive. It is therefore not possible to identify the particular gains that are made on carried interest or to disaggregate the proportion of the cost of the overall relief, which is approximately £4.78 billion in 2006-07. If we produced the report that the hon. Member for Fareham requested, it would make less interesting reading than he might like.
	However, I believe that the hon. Gentleman raised the matter because he wants to know the direction of the review. As he knows, although an effective capital gains regime is vital to encourage enterprise and stimulate investment and entrepreneurship, it must also distinguish between employment reward and capital gains and ensure that a proper balance is struck. Indeed, the shadow Chancellor made the same point when announcing his review last week. He said:
	"As leading members of the private equity industry acknowledge, if it looks like income then it would be peculiar not to tax it like income... But if it looks like genuine risk-taking and entrepreneurship then we should do everything to encourage it."
	I agree with that sentiment.
	That is why we are currently reviewing the taxation of a range of employment-related securities, which private equity and non-private equity companies alike use to ensure that the distinction is correctly drawn. If it reassures the hon. Member for Fareham and makes it easier for him to withdraw the motion, I assure him that we will provide an update on that review, too, at the time of the pre-Budget report. I shall make sure that, while avoiding excessive bureaucratic duplication and even more reports, we provide such an update on those issues at the time of the pre-Budget report.
	On the issue of corporate tax deductions for interest payments, I can confirm that the goal of the Treasury review that I announced earlier this year is to determine whether the rules that apply to private and non-private equity investments alike are working as intended. That review is looking at the way in which the rules are working in the light of market developments but, as I said in my March speech, the deductibility of interest as a business expense for tax purposes is a fundamental principle of our tax system. We are not reviewing the basic principle that interest should in general be treated as a business expense and is deductible for taxable profits for companies in any form of ownership. However, we aim to ensure that where shareholder debt replaces the equity element in high-leverage deals, it does so consistent with our intention that interest on debt should be tax deductible. Equity, however, is treated differently, to make sure that we are as consistent as possible in our aim of providing a level playing field. As I said, the review will be published at the time of the pre-Budget report.
	The hon. Member for Fareham wondered whetheror not Government Members were sending mixed messages about private equity. From the Treasury's point of view, we have sent a clear message: we believe that private equity can play an important role in the economy by driving change, and by promoting employment and investment. There are some bad private equity deals, however, in exactly the same way that there are some poorly performing public companies. It is much better to look at the conditions to support long-term investment than take a particular view on private equity. I responded to an Adjournment debate introduced by a potential leadership candidate—that candidacy did not last very long—on those matters, so we have debated those issues fully in the House. I do not think that Ministers or the Treasury have sent mixed messages, but the same could not be said of Opposition Members. The shadow Chancellor's review was reported by the  Financial Times on 22 June under the headline, "Tories back higher taxes for private equity". The article continued:
	"The Conservatives have signalled they would support higher taxes for private equity executives, increasing the political momentum for a clampdown this autumn."
	The BBC website reported:
	"Mr. Osborne's inquiry appears to blur the traditional left-right political divisions, with the Tories appearing to be tougher on the super-rich than Labour."
	In his speech earlier this year to the British Private Equity And Venture Capital Association—I think that that the hon. Member for Twickenham referred to that—the shadow Chancellor said:
	"Listen to the critics and you would think that the only winners were a secretive bunch of millionaires. But the real winners are the millions of people with pensions invested in the funds that invest in you...The importance of your contribution to our economy is, I believe, rightly reflected in the tax treatment that you receive...I will speak up for your industry and the wealth it creates. I will not make any moves that discriminate against the private equity industry."
	Perhaps we should reconsider our position—perhaps a report should be published, although the shadow Chancellor's report will be issued before the pre-Budget report, so there will be plenty of time to reflect on its findings. It is often said that the Opposition parties are good these days at spin, but either they have contradicted the shadow Chancellor's speech in March or the FT misunderstood the story. In any case, given the number of reports that have been published, I do not think that we will gain enlightenment from a further report. Instead, I encourage hon. Members to look forward to the report by the Treasury Committee with interest. We will respond on all those matters at the time of the pre-Budget report. On that basis, I suggest that the House reject the new clause.

Frank Field: I beg to move, That the clause be read a Second time.
	I was a few minutes late because I went to check the letter board, hoping that I would have an answer to the question that I first tabled on 16 April and retabled on 30 April. On three occasions on the Floor of the House, I have asked why I had not received a reply. Perhaps, by leave of the House, I may be able to respond at the end of the debate, by which time I may be able to read the parliamentary answer giving us the information that we require. That information is by what amount our constituents will lose out by the abolition of the 10p standard rate of tax, and how many of them and which groups will be affected.
	Let me declare an interest: I favour the abolition of the 10p rate of tax. I believe that most of our constituents think about a headline rate, and that is the standard rate. Any move that brings the standard rate down is welcome to me. Indeed, long before I cameto the House, I was advocating the abolition of tax allowances so that we could get the standard rate down even further than it has fallen today and is proposed in the Budget.
	It is clear from our postbags around the country that three groups stand to lose from the change, and they may not be covered by the tax credits changes that have already been announced and the child benefit changes that might be announced next year. The first group is lower-income households that will see their tax burden increase as a result of the abolition of the 10p rate, while those on higher incomes see their tax take fall. One person put it in powerful terms in their letter to me by saying that they never thought that they would see a Labour Chancellor of the Exchequer redistributing from poorer to richer households. As to the numbers that are affected, I hope, as I said, to read the parliamentary answer in a moment.
	Secondly, a number of voters around the country have said that, although their husbands will benefit from cuts in the standard rate, they will lose income through the abolition of the 10p rate because they are viewed in traditional terms as the minor earners in the household, although most such households would not survive without their two earners. My hon. Friendthe Member for Wolverhampton, South-West (Rob Marris) mentioned the third group—this is the first time we have raised the matter in the House—which is people who have retired early, largely because of ill health, and who do not gain the advantages of the additional tax allowances that people gain once they reach the standard retirement age. It could be argued that the change in the tax rates will be offset inthat way.
	The new clause therefore says that, before the House of Commons considers measures that affect our constituents' living standards, particularly where we are decreasing them, the Government should give us the information as part of the Budget, so that we know the numbers and the extent to which that cut in income is taking place. We know that the measures before us will affect some people who will lose out in relation to the 10p rate. I am not sure how many, but I am hoping that that will be revealed.

Frank Field: That contribution was valuable not only because of the point that was made, but because it gave me a chance to read the parliamentary answer, so I shall read the heart of the mystery into the record before I sit down.
	The next part of the new clause is supported on other Benches. Some people try to get ex-leaders of the Liberal party to join their cause; my attempts were more modest, but I hope more effective in engagingthe two Liberal Democrats on the Front Bench, the hon. Members for Falmouth and Camborne (Julia Goldsworthy) and for Twickenham (Dr. Cable). We should have a guarantee that, before the proposed measures came into effect with the next Finance Bill, some transitional form of relief would be announced for people who were going to lose money.
	After a first reading of the parliamentary answer—I am well aware of what the question was—we know that 31 million taxpayers have benefited from the 10p standard rate of tax, and that some 28 million of them stand to gain as a result of the 20p rate. That means that 3 million people will lose out—31 million minus28 million—but the written answer may contain further details.

Theresa Villiers: The hon. Gentleman makes a strong point, and I shall come to that issue. If the Government are relying on tax credits to soften the blow of the abolition of the 10p band, they must do something to improve the way in which the system works and to raise take-up rates. That is critical if we are not to see the hardship caused by the Budget becoming really significant.
	In making changes to tax rates and assessing their impact on different income groups, the Chancellor should bear in mind the pattern of poverty in21st century Britain. According to the Institute for Fiscal Studies, poverty among adults without dependent children—a group significantly affected by the tax changes in the Budget—is now at its highest point since records began in 1961. That group now makes up one third of the total of Britain's poor.
	A number of deeply worrying points emerged from the most recent Department for Work and Pensions figures on poverty, covering the period between 2004-05 and 2005-06. These were analysed by the IFS and show that relative poverty and income inequality actually got worse last year. The number of people in relative poverty rose from 12.1 million to 12.8 million.
	A range of measures demonstrates the recent increase in inequality of income. The most commonly used measurement, the Gini coefficient, tells us that income inequality has increased in total during the Chancellor's 10 years at No. 11 Downing street. The DWP figures also show that the number of people living in absolute poverty rose by 400,000 to 7.4 million—12.6 per cent. of the population—last year. There are more people in deep poverty now than when the Chancellor entered Downing street. There are 600,000 more people on less than 40 per cent. of median income now than there were in 1997, and the poor are getting poorer. Recent Government data show that the real incomes of the poorest 20 per cent. actually fell last year.
	Many people—not just those on this side of the House—have expressed concern about this state of affairs and about the impact of the Budget on tackling poverty. The right hon. Member for Birkenhead today repeated his concerns about the impact of the Budget on those on low incomes, but he was not alone among his Labour colleagues in expressing anxiety. As the hon. Member for Birmingham, Selly Oak (Lynne Jones) acknowledged, the Budget neglected poorer people who have no children. The hon. Member for Coventry, North-West (Mr. Robinson) has pointed out that the Budget is hurting many people whom the Government never set out to hurt, and the right hon. Member for Darlington (Mr. Milburn) admitted in the Budget debate last year that, under Labour,
	"poverty has become more entrenched."—[ Official Report,28 March 2006; Vol. 444, c. 710.]
	Turning to the point raised by the hon. Member for Dundee, East (Stewart Hosie), in assessing the impact of tax changes on different decile groups, it is critical to look at the marginal rates of taxation that they face,as they have a significant impact on incentives towork and to emerge from benefit dependency. Mike Warburton of Grant Thornton said after the Budget:
	"Families on low incomes will really lose out because they will pay a marginal rate of tax at 70 per cent. starting from an earlier point."
	With the abolition of the 10p band and the increase in the tax credit withdrawal rate, the Budget leaves many low-income families with marginal tax rates of even more than 70 per cent., as their benefits are withdrawn with each extra pound they earn. Of course, such rates make it much harder to escape the poverty trap.
	In conducting an assessment of this issue in relation to different income groups, the Chancellor must take into account the interaction with the tax credit system. To return to the point made in an intervention by the right hon. Member for Birkenhead, one of the ways in which we can help those who are hit hard by the Budget is to get the tax credit system to work effectively, and to reform it so that we grapple with the chaos that has characterised it over the past couple of years. As Francesca Largerberg of the Institute of Chartered Accountants said after the Budget:
	"It is now seemingly necessary for those with incomes between £5,225 and £18,605 to get to grips with the tax credit system and claim in order to negate their losses."
	Both the Chancellor and the Chief Secretary have defended the abolition of the 10p band on the ground that tax credits will compensate some of the families affected. As I have set out, however, not everyone qualifies for tax credits, and as we heard from the hon. Member for Dundee, East, not everyone claims them. As Ms Largerberg went on to explain:
	"Tax credits may in some cases claw back lost income but they are often difficult to claim and some lower earners may not be eligible".
	The figures for the uptake of working tax credit among childless households—as we have established, a group significantly affected by the loss of the 10p band—are as low as 25 per cent. of the total entitlement and only 19 per cent. of eligible claimants. If the effect of a tax increase is to push more people into the tax credit system, one must assess the way in which the system is working to analyse properly the impact of the change proposed. The latest available figures show a depressing picture. Of 5 million payments made, more than 2 million were overpaid and almost 1 million were underpaid, which means that more than half the payments in the system were wrong. At least £200 million has been lost through fraud. The tax credit website had to be taken offline because of wholesale attack by fraudsters.
	As the Chief Secretary will be well aware, every MP has had constituents coming to advice surgeries to explain their desperate problems with huge bills for overpayment that they simply cannot afford to meet. The former Secretary of State for Work and Pensions, the right hon. Member for Sheffield, Brightside (Mr. Blunkett) said:
	"The tax credit system is a shambles—such a shambles that I've had to help out one of my constituents financially, only the second time that I ever have done this, and the first was for a child. I don't know if I will get the money back. I suppose it is a foolish thing to do, and it has to be on the pain of death that they don't tell people. But what else can you do when the tax credit system is such a total mess?"
	Sir John Bourn, the Comptroller and Auditor General, said:
	"People have been helped, but why do that in a way which causes such misery? And we've spent far more than necessary because we've had to write off the hundreds of millions of pounds we simply can't get back."
	The right hon. Member for Birkenhead has said:
	"Tax credits are clearly the bluntest of anti-poverty weapons and are the equivalent of attempting delicate key hole surgery with a hacksaw."
	To conclude, it is regrettable that the Chancellor has taken so long to answer the questions tabled by the right hon. Member for Birkenhead regarding how his Budget has impacted on different groups. That is further proof that the kind of serious and thoughtful assessment of the impact of tax rises on different income deciles envisaged by new clause 14 was very far from the Chancellor's mind in preparing his Budget. He was so desperate to grab the headlines with his basic rate tax cut con that he was prepared to do anything to achieve it, even if that meant hardship for people grappling with poverty, low incomes, falling living standards, problem debt and rising interest rates. Because he wanted to pull a fast one during the Budget debate, the 10p band had to go.
	Of all the critical comment that followed the Budget debate, that of a former Member of this House, Michael Portillo, writing in  The Sunday Times about the closing seconds of the Chancellor's Budget speech, summed up the position most effectively:
	"30 seconds of theatre...had made poorer all those on low incomes who pay tax only or mainly at 10 per cent. Some will be compensated with tax credits, but not all. The chancellor cannot explain why he once thought that the lowest earners needed protection...but now has changed his mind. Those at the bottom of the pile have been sacrificed for the sake of a quick laugh. Politics, it seems, is but a game played with people's lives. It is astonishing that a chancellor who has worked with some success to redistribute income has, in his last budget, penalised the poorest but rewarded higher rate taxpayers."

David Taylor: Has my hon. Friend seen the report by the Chartered Institute of Taxation which calls for tax reform for older people on low incomes, not least because face-to-face advice in tax offices and inquiry centres is being withdrawn, home visits to the elderly and disabled are disappearing, and paper forms are disappearing in favour of the telephone and the internet, which many older people find difficult to use? How can they get their tax right in the fluid situation that we are discussing? Does he accept that there isa problem?

Rob Marris: While I do not want to go too far down that path, I agree that there may be difficulties for some pensioners, although one has to be careful not to aggregate all pensioners together. For example, almost 90 per cent. of pensioners over the age of 85 havea bank account, despite all the talk about the Department for Work and Pensions and the Post Office card account. However, one has to make special arrangements for vulnerable pensioners, and the Government have tried to do that.
	In terms of family poverty, we have had tax credits, and child benefit has gone up substantially, especially for the first child. The minimum wage has done a lot to address poverty and family poverty in particular. Above all, we have 2.5 million more jobs.
	The point that has not been made about new clause 14 is that the proposals would take effect from April 2008. They are not in this Finance Bill. That gives us a chance to pause for reflection and to consider the figures that have been mentioned. It is vital that we get more clarity from the Government on those. According to table A1 on page 208 of the Red Book, the drop from 22 to 20 per cent. in the basic rate of income tax will cost the Treasury £8 billion in 2008-09, the first year it is due to come in. However, the cost to the taxpayer of abolishing the starting rate of 10p in the£1 in tax year 2008-09 will be £7.3 billion.
	I am not an accountant, but my reckoning is that every hon. Member will benefit from that. We are all higher-rate taxpayers, and they are much less than10 per cent. of the working population in this country. We can all declare an interest in the 10, 20 and 22 per cent. rate, but intuitively the change says to me that there is a shift in the wrong direction, which is why I want more figures. Depending on those figures, my right hon. Friend the Member for Birkenhead (Mr. Field) may have a point about transitional relief, but it is difficult for him—he has not suggested otherwise—and the rest of us to know about transitional relief until we know what we are transitioning from. We have not yet got clarity on the figures.
	I happen to think that we will get those figures well before next April, which is when the transition is due to take place, and we can have a look at them then. For that reason, I would not support my right hon. Friend were he to press the new clause to a vote, although I understand the spirit of it. I am confident—perhaps naively—that we will get the figures. I urge the Government to produce more figures, and I hope that my right hon. Friend the Chief Secretary will do so. Depending on those, the Government might need to reconsider the matter. That is my initial reaction to the debate in the press, the Chamber and Parliamenton the effect of abolishing the starting rate and the corresponding cut in the basic rate of income tax.
	It may well be that when the Government have had another look at the issue and we have fuller figures, those of us—I count myself as one of them—who are loyal Back-Bench MPs by and large, but who are uneasy about the direction of the change, may have our fears stilled. At the moment, however, without that information, we still have those fears.

Julia Goldsworthy: The loyalty of the hon. Member for Wolverhampton, South-West (Rob Marris) is being stretched so far that he is having to justify his intention to vote against the new clause on the basis that we need more information and we have another nine months in which to get it, but that is a weak argument. These tax changes were the centrepiece of the Chancellor's last Budget. Does it matter when they will be implemented? In the closing sentence of the Budget, the Chancellor said that
	"to reward work, to ensure working families are better off and to make the tax system fairer, I will from next April cut the basic rate of income tax from 22p to 20p".
	From the debates on Second Reading, in Committee and now on Report, it is clear that, for many people in work and families, the Budget will not make the tax system fairer. People paying a higher rate of tax will benefit, and we are not sure why that will make the tax system fairer.
	If the information had been made available at the point at which the Chancellor made that announcement—in the Red Book, which also gave details of how the decisions would interact with each other—everyone would have been able to make a fair assessment. The reality is that after the Chancellor sat down no one had any idea how the cut in the basic rate of taxation would be funded until, after leafing as rapidly as they could through the Red Book, they discovered that it was through the abolition of the 10p rate, a decision referred to by the Chancellor with the words:
	"With the other decisions I have made today, we are able to hold to our pledge made at the election not to raise the basic rate of income tax."—[ Official Report, 21 March 2007; Vol. 458,c. 828.]
	That is ludicrous that such comments can be made, but it is so difficult to find the information about how that will be funded, let alone the impact that it will have on many households.
	Other hon. Members have spoken about the groups of people who will be affected. In particular, they have mentioned those on very low incomes, those who work part time—perhaps many of them will be women—couples with no children and a particular group of pensioners. Another group is those aged under 25 who are on low incomes, because they do not qualify for working tax credits. For those people, the tax system will not reward their work, ensure that they are better off or become fairer for them. On the surface the changes look attractive, but there is a lot going on underneath and it is not clear how it will all interact.
	The hon. Member for Chipping Barnet (Mrs. Villiers) made some good points about the statistics and bombarded the House with useful information. This is outrageous, and the right hon. Member for Birkenhead (Mr. Field) is being very reasonable in his new clause. All he is saying is that we should be upfront about matters. The differential impact on different groups of taxpayers should be made clear at the point at which the announcements are made. Tribute must be paid tothe right hon. Gentleman for teasing out much of the information in the Budget debate and during the progress of the Bill.
	If the Minister is not prepared to accept thenew clause, I wonder whether he would consider an alternative way of pursuing the matter. The Statistics and Registration Service Bill will come back before us in the near future, and perhaps the national statistician might be able to call in the issue and for the information to be made available as a national statistic.
	We have a sense of the impact that the changes will have, and much of that is thanks to the work of the Institute for Fiscal Studies, whose response to the Budget provided a lot of information. I do not see any reason why the Treasury could not undertake that work in advance and publish at the same time as the Budget. Some very compelling arguments have been made. It is crucial that the information is made available at the time that the changes are announced, instead of when they are implemented.

Stephen Timms: I welcome this debate, and all hon. Members will understand the motivation and thinking behindthe new clause moved with characteristic convictionby my right hon. Friend the Member for Birkenhead (Mr. Field). However, I hope that I can persuade the House that the proposal is impractical and that, if we are to assess the impact of personal tax changes on a group of taxpayers, we need to do so over a period longer than that covered by a single Budget.
	It is worth reflecting on what this year's Budget package will achieve. There will be a significant simplification of the income tax system, which my right hon. Friend has welcomed, and the reduction in the basic rate to 20p. A further 200,000 children will be taken out of poverty, on top of the 600,000 helped in that way by previous measures. More than 500,000 pensioners will be taken out of tax entirely, and the biggest proportionate gains from the Budget tax package will go to those in the lowest two deciles of income.
	That latter fact is something that I want to emphasise, especially in light of the observations made by my hon. Friend the Member for Wolverhampton, South-West (Rob Marris), and it is made clear in the analysis presented by the Institute for Fiscal Studies to which a number of speakers have referred. That analysis is still available on the IFS website, and I was checking it out earlier today. It is a very striking attribute of the Budget that the biggest proportionate gains go to the households on the lowest incomes.

Stephen Timms: I can confirm that the take-up of tax credits among the lowest-income families is well above 90 per cent. I do not know the basis for the figure quoted by the hon. Gentleman, but the take-up is very high among those who need the greatest support. It is certainly much higher than that achieved under any previous system of family income support.
	Overall, the fiscally neutral Budget represents a£2.5 billion reduction in personal tax—that is, tax plus tax credits. The director of the IFS said:
	"To reform the system in a useful way within tight financial constraints and with only modest gains and losses should be a cause for congratulation."
	It is important that the House recognise the significance of the achievements secured by the Budget package.
	This Budget builds on the progress made in earlier Budgets. There has been some discussion, rightly and fairly, of the position of pensioners. This year, the Government are spending in real terms about£11.5 billion more on pensioners than if we had left the system as it was in 1997, and nearly half that extra spending—more than £5 billion—is going to the least well-off third of pensioners. On average, they are £2,300 a year or £44 a week better off. Other groups in the taxpayer population referred to in the debate have benefited from other changes. We need to make a full assessment of the effects on people of changes introduced over a period rather than insisting on the basis of one year's tax changes that there should be transitional protection.
	The Budget package forms the next stage in a programme to offer more support for work, for families and for pensioners. It includes eight separate reforms and the House will have the opportunity to debate each as they are put into legislation over the next two years. When the package is fully implemented, 6 million families with children will be better off and the gain to work will rise by £50 a year for many, up to £350 a year for some, helping to work make pay. The package reduces and simplifies personal taxation within a fiscally neutral Budget, protecting and boosting the incomes of vulnerable groups, with the number of losers minimised. I am not saying that there are none, but the number has effectively been minimised.
	The new clause would require transitional relief measures so that any adverse effects of personal tax measures are phased in over a period. That would not be the right thing to do for two reasons. The first is complexity—I know that my right hon. Friend the Member for Birkenhead is sensitive about that point. Income tax is paid by more than 30 million people—I think my right hon. Friend said 31 million. Transitional, and thus temporary, changes would add significant complexity to a system that is central to Government finances and to the maintenance of strong public services.
	The impact of the proposal would depend on the form taken by the transitional measures. My right hon. Friend and I had a brief conversation about one model, which is, if I understood it rightly, that taxpayers could choose whether they were taxed on the basis of the new system or the old. I think he realised that would be an extremely complex system to administer and that it would impose a large burden on employers as well as on Revenue and Customs. In debating the new clause, I am in some difficulty, because I am not sure what kind of transitional measures we are talking about. The only ones I can think of, which my right hon. Friend and I briefly discussed, would be impractical. Indeed, it would be impossible to implement such a dual system in time for next year.

Frank Field: My right hon. Friend says that he is in some difficulty because he does not understand the nature of transitional relief, but we are still waiting for him to give us a proper breakdown of who benefits and who loses. His difficulties are nowhere near as greatas ours in trying to understand the Government's position.

Stephen Timms: The point I was making is that I do not think that there are any practical transitional measures that we could adopt. If the House were to legislate, there would have to be transitional relief measures. We would need to have some idea that a practical package were available for us to implement and I do not think there is one.
	I apologise to my right hon. Friend for the fact thatit has taken so long to answer his question about numbers. I am pleased and relieved that he has the information, which I hope is helpful. Other analysis is available, including that undertaken by the Institute for Fiscal Studies, to which reference has been made.
	My right hon. Friend is particularly well informed about pensions, so he will recognise that one of the major reasons why the UK has such a complex pension system is that it contains so many transitional measures to maintain old arrangements phased out in the past. It would be a mistake to introduce similar arrangements in the tax system.
	The elements of the personal tax package in the Budget were designed to ensure that, overall, low income groups were effectively protected, and the IFS analysis confirms that they have been. For example, a single-earner couple without children—to pick up on one of the points that was made earlier—on half median earnings receiving working tax credit will be £175 a year better off as a result of the Budget. That is right in the middle of the band that was mentioned. A lone parent, with one child, working full time at the minimum wage will be £335 a year better off. If weall agree—I think that on the whole we do—that it is right to prioritise the reduction and ultimately the eradication of child poverty, we need to prioritise households with children in Budget measures. That is what the package in the Budget does.
	I hope that I have managed to persuade the House that it would not be right automatically to require transitional measures for any changes that left a particular group of taxpayers disadvantaged, however slightly—which is what the new clause would do. As far as I can see, where losses accrue to some as a result of the changes, they are small.

Stephen Timms: Information has already been published. I point the hon. Lady to the IFS analysis for the sort of detail that she is asking for. That shows that the biggest proportionate gains from the package will be enjoyed by households in the lowest two income deciles. That is an important feature of the package.
	I hope that I have persuaded the House that it would not be right to agree to the new clause. I understandthe concerns expressed by my right hon. Friend the Member for Birkenhead and others across the House, but they are effectively addressed by the tax credit changes that are part of the package as well. I hope that he feels that it would not be right to press the new clause to a vote, but, if he does press it, I will certainly ask my hon. Friends not to support it.

Frank Field: I thank my right hon. Friendfor those comments. The thrust of his remarks was that we have not put forward a workable scheme for transitional relief, but it was only seconds before I came into the Chamber that we got the crudest information on the numbers who would be gainers and the numbers—the 3 million—who would be losers, so it is a bit rich of him to say that we might have persuaded him had we come up with a workable scheme. For some reason or other, the information was not available. We could have looked at those data and come up with a workable scheme.
	I want to make two comments: one to my side and one to the Opposition. What the Chief Secretary said was significant. He said that households in the lowest two deciles are the big gainers from the Budget. Since Lord Lawson introduced personal taxation, we have never been primarily concerned with household income; we have been concerned with individual income. On this side of the House, we were particularly keen on that, because we wished to see a transfer from wallet to purse wherever possible. If the Bill goes through as it stands, it will reverse the tradition that we started. It will move moneys from low-paid women's purses into the wallets of higher-paid husbands. For that reason alone, people on this side of the House ought to be disturbed. I am sorry that there are not more women Members present to support that group in the debate and then in the Lobby.
	Had it not been for the speech made by the hon. Member for Chipping Barnet (Mrs. Villiers), I would have said that my right hon. Friend the Chief Secretary took the biscuit. We were told by the official Opposition that while the new clause addressed a serious problem, they would not vote on the matter. The hon. Lady said that we could rely on the tax credit system to compensate people who will lose out—we do not know who they are, but we know that there will be 3 million of them. The official Opposition have rightly secured debates and asked questions on tax credits. This evening, the hon. Lady said that one in two payments were wrong. However, although the tax credit system works so badly, she thinks that the lowest paid of our tax-paying constituents will be protected.

Mark Hoban: It is difficult to understate the mess into which the Government have got themselves on the taxation of small companies. After 11 Budgets and multiple rate changes, the Chancellor has almost come full circle on the subject. When the Government came to office, the rate was 23p in the pound. They reduced it to 21p in 1997 and to 20 per cent. in 1998. In 1999, a new 10 per cent. rate was introduced, reduced to zero in 2002, only to be put back up to 19 per cent. for non-corporate distributions in 2004. In this year's Budget, the rate was increased from 19 to 20 per cent.; next year it will increase from 20p to 21p, and the following year, it will go up from 21p to 22p. By the next general election, the small companies rate will be only a penny less than it was in 1997. There have been so many changes, yet so little progress. Eight tax changes have been made, simply for the rate to fall by only 1p in the past 10 years.
	That constant meddling in the small companies rate reflects a problem at the heart of the Government's tax policy. Treasury Ministers perceive tax as a means of behavioural change; sometimes it might work and sometimes it does not. However, in 2002 some bright spark at the Treasury decided to stimulate enterprise by reducing the starting rate of corporation tax to zero. We know that that stimulated incorporation; hence the changes in later years to the starting rates, and their effects, until last year's abolition.
	In the debate in Committee of the whole House,the hon. Member for Wolverhampton, South-West (Rob Marris) and I referred to proceedings on Second Reading of the Finance Act 2002. We both admitted that our memory was rather hazy, but I checked the debate and I found a quote, in which I thought that hon. Members might be interested. It is:
	"As a result, many small unincorporated businesses, suchas plumbers, small builders or shopkeepers, think that they should incorporate because the tax position has become so advantageous for them...The Federation of Small Businesses asked whether that was a deliberate policy of the Government. The Inland Revenue assured the federation that the policy was deliberate and was intended to encourage enterprise. However, I am at a loss to understand how incorporation in itself is an encouragement to enterprise. I should have thought that we should be encouraging small businesses to be set up according to whichever format suited them rather than directing them—as the goal of Government policy—towards incorporation."—[ Official Report, 30 April 2002; Vol. 384, c. 895.]
	Even in 2002, some people identified the potential problem. Hon. Members may wish to know who made that speech; I must confess, with some modesty, that it was me. The Government were, therefore, warned about what might happen if the policy went ahead.
	The Government, in trying to remove the incentives, have gone into overdrive by creating the position whereby by the next general election, the small companies rate of taxation will be 2p higher than the basic rate of tax. The measure's impact on companies is crude. It is worth going back to the debate on this Bill in the Committee of the whole House, when the Financial Secretary said:
	"In fact, a quarter of large companies—those employing more than 250 staff—pay the small companies or small profits rate; and fully around half of medium-sized companies, which have between 50 and 250 employees, pay that rate."—[ Official Report, 30 April 2007; Vol. 459, c. 1266.]
	A measure that was apparently supposed to deal with unincorporated businesses becoming limited companies will lead to increases in the tax rate paid by 13,000 medium-sized companies and about 1,500 large companies.
	In the spirit of consensus, may I offer to help the Government out of the hole they have got themselves into by increasing the tax rate on many businesses employing more than 50 staff? In amendments Nos. 41 and 42, they have an opportunity to focus the measure more effectively on the smallest companies, whichthey believe responded to their policy in 2002 to incorporate.
	What is the Government's justification for the measure? What are they using to defend that changeof tax policy? The Budget note on corporation tax reform summarised the argument succinctly by setting out three main objectives of reform: enhancing the international competitiveness of UK-based business; encouraging growth through investment and innovation; and ensuring fairness across the tax system. Those are laudable objectives, but let us look more carefully at what they mean in practice for small business. The cut in mainstream corporation tax, which we support, aims to improve Britain's international competitiveness, but only for companies earning profits of more than £300,000 a year. The Government's attitude is, "If you earn profits lower than that, tough." The Budget has worsened the position of such companies.
	I suspect that the Financial Secretary will argue, as he did in the Committee of the whole House, that in the Budget there are changes to the annual investment allowance that will help small companies. However, that depends on businesses making decisions to invest in plant and machinery rather than in human capital. Small businesses that expected to earn the industrial buildings allowance or the agricultural buildings allowance will be hit hard by measures that we will discuss tomorrow.
	The Government use the argument of fairness to justify the increase in the small companies tax rate, but I have established that it is a crude, clunking measure that hits companies of all sizes. There is a problem at the heart of the tax change, as the Government do not understand properly how small businesses work and how they are affected by the tax system. If they did, perhaps they would not be in this mess in the first place. It appears from representations made by small business groups that they do not believe that the Government understand them, either. Carol Undy of the Federation of Small Businesses was reported as saying:
	"This is the Chancellor's eleventh Budget and this year's offering is no different to the others—he gives with one hand and takes with the other. Corporation tax was cut for large firms but increased for smaller ones."
	About the Chancellor's tax changes, the federation said:
	"tax cuts aimed at big business will do nothing to ease the burden for the majority of the private sector".
	The British Chambers of Commerce spoke out against the small companies corporation tax increase:
	"Many of our members feel let down and are dismayed by the measures taken which will hit their competitiveness and increase their tax burden".
	Small business organisations clearly understand, as the Treasury does not, the impact of the increase on their members and their ability to invest and grow in future. The Government have sent mixed messages for business in the Budget, and it is time for a consistent approach to company taxation. Cutting one rate but increasing another sends a confused signal to the business world. It is right to encourage businesses to grow and invest, so it is wrong for the Chancellor, who did the right thing for companies earning large profits by cutting the headline rate of corporation tax, to increase the small companies rate. Because of the mistakes that he made in the past, he is penalisingall small companies that pay that rate. Why should companies suffer because he got it wrong? The Government owe them an apology, not a tax increase.

John Healey: As the hon. Member for Falmouth and Camborne (Julia Goldsworthy) said, we have covered much of the ground before, several times since the Budget, and we have rehearsed many of the general arguments in debates on the Bill and elsewhere. The arguments that I heard this evening from the hon. Member for Fareham (Mr. Hoban) are fundamentally flawed, first in the proposition that there should be a differential in how the small companies rate is charged, and secondly, in the way that he attempted to target those rates.
	There are huge practical difficulties with attempting to fix a tax rate based on fairly arbitrary and easily manipulated criteria, such as employment figures. What is the rationale for choosing five employees as representing a real company, rather than, say, six or four? What if employment levels change throughout the year? Would a company wait until after it had filed its tax returns to cut the work force? Would it take on temporary workers in order to get above the magic level of five employees?
	On a more serious level, one needs to consider the risk of distorting what should be commercial decisions because of a tax structure. That would create incentives for small companies to merge not for commercial reasons, but for tax reasons. It would also be an incentive to exaggerate employment levels in the company. The proposition is seriously flawed in a number of ways.
	The core of the problem is not the practicality of introducing such arbitrary measures, but the rationale for doing so. To encourage investment, as the hon. Member for Fareham recognised, the Government have looked to reduce corporation tax rates successively since 1997, to the extent that even when we reverse that trend and return the small companies rate to 22 per cent., it will be still be lower than when we came into office in 1997. The hon. Gentleman acknowledged that earlier.
	The hon. Gentleman criticised us for what he termed constant meddling with the rates, but at each stage what we have done, and the rationale for doing it, have been clearly set out. At each stage we have said that the changes that we are making in the rates were to encourage retention, reinvestment and growth. As with all elements of the tax system, we have made it clear that we would keep those changes under careful and constant review.
	As hon. Members have recognised, the earlier changes and their impact were not as we intended. We saw an increase in incorporation taking place, not asa launch pad for growth but as a way of reducing personal tax and national insurance levels, while in many cases those involved were carrying out exactly the same economic activity as before.
	That is why we decided to change the way in which we focus incentives for growth, and we have changed the focus, not for some businesses, or those with fewer than five employees, but for all businesses—not just companies, but those that are unincorporated as well. The hon. Member for Fareham cited the Federation of Small Businesses, and I shall do so too, as I have in previous debates. It has welcomed the proposal forthe annual investment allowance, which will benefitthe direct activity of investment. By providing an allowance of up to £50,000 for all businesses, the arrangement will cover all the yearly expenditure of about 19 out of 20 small businesses, effectively providing them with 100 per cent. first-year allowances, moving towards a cash-flow tax system, dealing with what many small businesses constantly say is their biggest problem—their tax-flow levels. Even modest levels of investment in plant and machinery will bring significant benefits.
	We recognise that there are many sound reasons for incorporation. We do not want to stop or discourage genuine commercial incorporations. We are proud of our record in encouraging the start-up and growth of small firms, not least with the stability that we have been able to bring to the general economy. The changes that we are making in the Bill build on that success. They reduce the unfair tax advantages that can distort competition between incorporated and unincorporated businesses, and they ensure that the incentives in the tax system that are designed to promote growth will do just that.
	For that reason, I hope that the hon. Memberfor Fareham will not press amendment No. 43. Amendments Nos. 41 and 42 go directly against what businesses say to us that they want—a simple and fair tax system—so I hope that he will not press those amendments, either. If he does, I shall ask my hon. Friends to resist.

Mark Hoban: This has been a brief debate, which is probably to the advantage of all hon. Members; as the Financial Secretary said, we have rehearsed these arguments before.
	I accept that amendments Nos. 41 and 42 are quite crude amendments. In a sense, they mirror what the Government have sought to do by increasing the small companies rate, because the Government's increase has been a very crude way of tackling a problem of their own making. Perhaps the Financial Secretary should take his own advice about measures that could endup distorting commercial decisions. Tax can distort commercial decisions, as the 2002 tax changes clearly did. He needs to reflect on that when considering future changes.
	It is clear that, despite the package that the Financial Secretary described, as we established in the Committee of the whole House, the average gain for businesses from the introduction of the annual investment allowance is about £60 or £70 a business. The loss for small companies as a consequence of the increase in the tax rate is about £1,000 a company. I think that many small businesses and companies will find that a burden, and will find that they cannot invest as much as they would want to invest in developing their staff.
	That sends out mixed and confused messages to companies that hear the Chancellor praising large companies and cutting their corporation tax, while small companies are penalised by this increase. That is why I wish to press amendment No. 43 to a vote—to send out a clear signal that at least on the Opposition Benches, we back small companies and want to see them grow.

That the draft Regulatory Reform (Game) Order 2007,which was laid before this House on 4th June, be approved. —[ Mr. Watts.]
	 Question agreed to.

Motion made, and Question put forthwith, pursuantto Standing Order No. 119(9) (European Standing Committees),

Bob Spink: I am pleased to present a petition against inappropriate development next to one of the most important and beautiful conservation areas in Essex, opposite St. Mary's church in Benfleet. It is remarkable that Brian Keeler, a campaigner who is held in high public esteem, was able to gather almost 1,000 signatures in a very short space of time. I am grateful to other excellent campaigners from our community, such as the president of the friends of St. Mary's church, Chris Findlay. The petition explains why the development is totally unacceptable, and I urge local councillors to listen to residents and to reject the application. I thank eachof the petitioners for caring enough about their community and environment to sign this excellent petition.
	The petition states:
	To the House of Commons,
	The Petition of people living around the St. Mary's Church Conservation Area, declares that we the residents of Benfleet and surrounding areas object to the proposed demolition of the parade of shops opposite the historic St. Mary's Church, in High Road, Benfleet to make way for a new block of four shops with five one bed and eight two bed flats in a two storey development above the shops with underground parking, on the grounds that the access is unacceptable, there are insufficient parking arrangements, particularly for visitors to those new properties and shops, and consequently the shops and public will suffer, because the bulk of the proposed building would be unacceptably detrimental to the street scene in this sensitive position around the Conservation Area and because this would put unacceptable additional stress on the existing infrastructure at a sensitive point on the highway and for many other valid planning reasons as set out by the Member of Parliament and the previous Council members for the ward, in their objections to the earlier applications which were rejected.
	The Petitioners therefore call on the House of Commons to implore the Government to impress upon Castle Point Borough Council, and the three Boyce Ward councillors in particular, the imperative that this application is decided by members rather than unelected unaccountable officers, and the need to reject the application on behalf of all residents of Castle Point who are sick to the back teeth of the attempts to overdevelop their community.
	And the Petitioners remain, etc.
	 To lie upon the Table.

David Heath: I am grateful for the opportunity to raise this issue tonight. I notice that the last time I raised the issue of roads in the south-west on the Adjournment it was at 11.15 pm, so tonight's timing is slightly better.
	Although the title of my debate on the Order Paper is "Strategic routes in the South West", I hope to reduce the scope of that a little, as it would be a very large subject. One might have a debate about the rail system in the west country, which is desperately in need of investment to meet the demands on it, or about the motorway system. I want to concentrate my comments, however, on the A303 in my constituency and the strategic routes between the south coast and Bristol and Bath. I will try desperately to put out of my mind the fact that, because of the Glastonbury festival traffic, it took me four hours to drive from my constituency this morning along the said A303. Indeed, it is not capacity or journey times that I want to concentrate on, but rather safety and the quality of life for people who live in my constituency.
	The particular stretch of the A303 that most interests me is between Sparkford and Ilchester. It horrifies me to realise that I have been talking at intervals aboutthat stretch of road, which is only 3&frac12; miles long, for the 10 years that I have been in the House and before that as a county councillor. We went through a long process immediately prior to my entering the House in 1997, when the then Government produced plans for safety improvements on that stretch. They were put to local people and went through a public inquiry. The public inquiry satisfied itself that there were no overwhelming environmental problems or problems with local concerns about the plans.
	That was different from other parts of the A303. There was considerable concern about the implications of schemes to increase capacity over the Blackdowns, and we have a continuing problem with what canbe done at Stonehenge. However, there was a general realisation that there could be a significant improvement in the safety of the stretch of road from Sparkford to Ilchester by dualling it, and that that could be done without an excessive take of land and reasonably inexpensively.
	The scheme got caught in the moratorium on road building as the new Government took office in 1997. We then entered into what I have learned to call the south-west area multi-modal study—the so-called SWARMMS report—which looked at the whole length of the A303, and there it stayed. I have raised the issue at regular intervals since then. When I did so in 1998, the then Minister, the hon. Member for Hampstead and Highgate (Glenda Jackson), gave me a learned dissertation on Stonehenge and why I should caremore about it than about my constituents. I do care about Stonehenge, but I was interested in safety improvements between Sparkford and Podimore.
	Every time we have raised the issue since 1997 we have seen an ever-receding prospect of action. Why do we need action? It is a stretch of road where the A303 changes from a dual carriageway to a single carriageway and back to a dual carriageway. There is a pinchpoint. It carries a significant amount of traffic. I have said before that the A303 carries more traffic than many motorways, particularly in the summer season, when there is a great deal of holiday traffic, much of which, for some reason, wants to go to Devon and Cornwall. I cannot understand why entirely, but it does, and it goes through Somerset. There is also a lot of locally induced traffic from the Glastonbury festival, the Yeovilton air show and local events of that kind.
	The other critical factor is the distance of the stretch of road from London and the far south-west. It is at the point when drivers start to get tired and lose their concentration. According to information that I have been given by the Highways Agency, the sad consequence of that is that there have been 18 deaths and 68 serious injuries on that short, 3&frac12; mile stretch. That is significant.

Oliver Letwin: The hon. Gentleman makes a powerful case. I hope that he agrees that there is another reason for taking the steps that he advocates: the effect lower down on the A35 on the south coast, where my constituents suffer from an excess of through traffic which could be relieved to a considerable extent by dealing with pinchpoints onthe A303.

David Heath: I am grateful to the right hon. Gentleman. I do not know the details of the situation that he describes in Dorset, but I am well aware of the case for establishing the A303 as the second strategic route—as I am told I must call it. Sometimes I am told that I must call it policy TR3 of the regional spatial strategy. All those acronyms denote the fact that it is a very important road and something needs to be done.
	Apparently, that stretch of road will not be done before 2016 at the earliest. The implication is that if the problems of Stonehenge—which I understand is a difficult conundrum, given that a world heritage site is right next to a trunk road—cannot be satisfactorily resolved, nothing will be done along the entire length of the A303. We have proposals for a single scheme, which should not be included in the whole scheme for the length of the A303 but judged on its merits. Those merits suggest, in safety terms and for the sake of saving lives, that it is justified. It concerns me greatly that it will be held up by circumstances beyond the control of anyone who is making the case for it. Those circumstances include the Stonehenge issues and the problem of investing in the A358 as the other leg that brings the traffic from the A303 back to the M5. I ask the Minister whether we can look again at the safety record of that short stretch of road and how we can improve it. We cannot reasonably and responsibly wait until 2016 for something to be done.
	The other outstanding issue on the A303 is the noise-reduction surface, which we were faithfully promised by the Highways Agency would be in place four years ago. For the sake of their quality of life, people who live in close proximity to a road that forall intents and purposes is carrying the traffic of a motorway, in places such as Blackford, Holton, Maperton and Compton Pauncefoot, have been desperately waiting for a change in the surface. They are sadly disappointed that it has not been done yet.
	I thought that the subject of the second strategic route was opaque, but BB2SC—as I am told I must call the other route—is even more obscure. BB2SC does not yet exist but will be the road that will connect the south coast ports of Poole and Southampton with Bristol and Bath and, therefore, the motorway network to the north. The difficulty at the moment is that we have not identified that key strategic route. The consequence of that is that heavy goods vehicles leaving those ports—and we are told that both ports will be expanded—take totally unsuitable routes north. They choose different routes, one of which is the A357 through Dorset into the Blackmore vale and, in my constituency, through villages such as Henstridge and Templecombe. I cannot imagine villages that would be less suitable for heavy goods vehicles, given the width of the carriageway, the fact that buildings are very close to the road on each side, and the sharp bends. They are totally unsuitable for lorries of any size.
	In addition, Templecombe has a low railway bridge and, every month or so, a lorry gets stuck under it. I was in Templecombe only three or four weeks ago and a lorry got stuck. It got squashed under the bridge about 20 minutes after Abbas and Templecombe primary school had finished its day. Had that happened 20 minutes earlier, the pavement under the bridge would have been full of primary-age children. That is unsatisfactory, dangerous, and could be completely avoided if we had a proper strategic route, with all the necessary signage, to take lorries away. The road is supposed be an A route, but it is incapable of taking that sort of traffic.

Stephen Ladyman: I begin by congratulating the hon. Member for Somerton and Frome (Mr. Heath) on securing this debate and making his constituents' concerns so clear to the House. In the next few minutes, I hope to be able to give him the information, if not the comfort, that he seeks.
	As the hon. Gentleman said, the A303 is an important trunk road, and part of the strategic route from London to Exeter. Much of it is already dual carriageway, but he was right to say that there remaina number of single-carriageway sections, includingthe stretch between Sparkford and Ilchester in his constituency. The A303 serves local, regional and longer distance traffic and, as he said, it is a popular holiday route to the south-west. It is also an important route for businesses from Somerset, Devon and Cornwall.
	The single carriageway sections are often congested during the summer months as the road provides the most direct route to the south-west for tourists from London and the south-east. The main alternative to the road is the longer M4 and M5 route around Bristol, but as we all know there is increasing pressure and congestion on the M4 and M5, too. It is against that background that we accepted the conclusion of the London to south-west and south Wales multi-modal study that, in transport terms, there is a strong case for the whole of the A303 route to be improved, which would provide a second high quality dual carriageway road from London to the south-west.
	However, we have to recognise that dualling the remaining single carriageway sections of the A303, and the necessary upgrading of the A358 from Ilminster to the M5, would involve a number of expensive schemes. In a world of finite resources we must ensure that our transport investment is focused on the most important priorities. That is why in July 2005 we asked the south-west region for advice on transport priorities, within an indicative funding allocation for major schemes in the south-west.
	The regional funding allocations process, for the first time, has given regions a say in decision making about transport schemes that affect them. The RFA processis an opportunity for people in the region to work together to develop a realistic, prioritised and affordable transport investment programme, to support the region's high level objectives for jobs, the economy, housing and the environment. It is central to our thinking that regions are better placed than the men and women of Whitehall to advise decision makers on how transport can help make regions into even better places. I hope the hon. Gentleman will welcome that approach.
	We are backing the RFA process with massively increased investment funding. We have increased our annual spending on such schemes by 50 per cent. since 2001-02; for example, the Highways Agency has invested £92 million to improve the A30 between Bodmin and Indian Queens—a scheme that, subject to events later this week, I hope to open on 11 July. In addition, £16 million is being spent on improving the Commonhead junction on the A419 in Swindon. The agency is spending £42 million to provide a much needed bypass for Dobwalls on the A38 in Cornwall and £65 million constructing the Blunsdon bypass, also on the A419 near Swindon.

Stephen Ladyman: I cannot give the hon. Gentleman that sort of information this evening. I can certainly investigate the matter and write to him setting out the latest position. I can assure him that we are keen to work with stakeholders and local communities to identify designs for schemes that have the least possible negative impact on local communities. If there is a way of building the scheme that does not add to the cost and is just as effective, but does not have those negative consequences, we will look at it. I will happily write to him about that.
	To return to the regional funding allocation process, I understand that hon. Members may be disappointed about the outcome, but, nevertheless, we accepted the region's advice. We have asked those involved in the regional funding allocation to look at their priorities again and come back to us next year to tell us whether those priorities have changed. I put it to the hon. Member for Somerton and Frome, his colleagues on the Back Benches, and hon. Members across the House that if they do not like the priorities that their region has come up with, they have the opportunity over the next year to work within their local region to win over people's hearts and minds to a reprioritisation process. We would be just as delighted to accept that advice as we were to accept the original advice.
	Let me deal with the safety concerns that the hon. Gentleman has alluded to, in particular in respect of the Ilchester and Sparkford section. The level of accidents on that stretch is not significantly higher than the average for trunk roads. The national average is16 personal injury accidents per 100 million vehicle kilometres and the rate for that section of road is 16.72. However, that is not an argument for not taking other opportunities to improve safety when we can do so sensibly. We thus recently invested £450,000 in safety improvements at the Podimore roundabout. Although it is still only a year since the scheme was introduced, the early indications are encouraging. The number of accidents has dropped from an average of 19.25 a year, as measured over a four-year period, to just six in 2006, which was the first year of the scheme's operation.
	Let me turn to noise levels. The hon. Gentleman said that he wanted the A303 to be resurfaced. I understand his constituents' distress about the problem, but highways are resurfaced to maintain their safety. We do not have the resources to resurface highways simply to reduce noise. When the highway needs to be resurfaced for purposes of maintenance or safety, quieter materials will be used. However, these days we do not resurface in advance of a need for maintenance.
	Concern was expressed about the inappropriate use by heavy goods vehicles of the A37, which provides a link between Dorchester and Bristol, and the A350/A36, which provides a link between Poole and Bath. Somerset county council is responsible for those roads. It says that it aims to discourage the use of those unsuitable routes through dialogue and publicity, and, when necessary, by introducing weight restrictions. If the hon. Gentleman does not think that those measures are working, I am afraid that he needs to take up the matter with Somerset county council, rather thanwith me.
	The hon. Gentleman and the hon. Member for Tiverton and Honiton (Angela Browning) raised an important point about satellite navigation. I am not in a position to update the information that I gave in the Adjournment debate to which the hon. Member for Somerton and Frome referred. However, we are determined to do something about the inappropriate use of satellite navigation. It is ridiculous that the drivers of lorries and heavy goods vehicles are using car-based satellite navigation systems and ending up with the sort of problems that he identified. We are analysing the results of our consultation and we will come forward with proposals on how to deal with the situation as soon as we can.
	I am sure that I have not given the hon. Gentleman the comfort that he was seeking. However, I hope that he will re-engage with the regional prioritisation process over the next 12 months to find out whether he can influence the local area's priorities. I will certainly let the House know that we are in a position to say what we will do about satellite navigation and the use of inappropriate roads by heavy goods vehicles as soon as the information is available.
	 Question put and agreed to.
	 Adjourned accordingly at seven minutes past Eleven o'clock.